Improving R&D incentives will create jobs – KPMG

25 Nov 2011

A revamp of the current research and development (R&D) tax regime would entice 45pc of businesses in Ireland to recruit extra staff. That’s according to KPMG’s 2011 R&D Survey, released today.

The survey, which was carried out this past autumn, highlights the views of 100 business leaders on Ireland’s R&D performance.  

All business surveyed had a minimum of 10 employees and turnover ranged from less than €1m to in excess of €50m. Of those surveyed, 43pc had turnovers in the range of €5m–€50m. Sectors represented included manufacturing (28pc), construction and engineering (18pc) and agriculture (13pc).

The Research and Development Tax Credit was first introduced in 2004. The tax credit was raised from 20pc to 25pc in 2008.

Some of the key findings on R&D tax credits reflect that increasing tax credits from their present level of 25pc to 35pc would encourage strong job creation potential.

According to KPMG, 45pc of companies say they would employ more staff if the credit was increased. This is a fairly significant leap from last year’s 36pc figure.

  • In addition, more than one in four companies (26pc) predict an upturn in investment if the tax credit was increased.
  • Just more than one-quarter (26 pc) of companies believe R&D credits are an important factor in attracting business to Ireland.
  • Only 18pc of those surveyed had ever claimed R&D tax credits. This is despite the incidence of applying for R&D grants being significantly higher, at 29pc.
  • More than one in five (22pc of companies) who had claimed the credit have been subjected to a Revenue audit of the claim, compared to just 6pc in 2010 – an almost fourfold increase.

Launching the report, Ken Hardy, tax partner with KPMG, said the survey shows that R&D tax credits have real value to the economy, especially in job terms.

“However, there is a key message in the report that R&D incentives are underused in the battle to tackle economic challenges. Our tax credit regime works well but some aspects should be revisited to ensure Ireland stays competitive,” said Hardy.

The main reason for not participating in the R&D tax credit scheme is a belief amongst respondents (69pc) that they are not conducting R&D or that the regime is not relevant to them.

“This assumption is not always correct. There are many businesses developing new processes and continuously innovating. Many of these are carrying on at least some level of R&D. However, they are not always aware of exactly what constitutes qualifying activity or spend,” said Hardy.

Currently, tax credits are available according to incremental spend incurred versus what was spent on R&D in 2003 (the ‘base year’). A full 54pc of respondents who expressed a definitive view agreed that this should be changed to a volume-based approach.

Carmel Doyle was a long-time reporter with Silicon Republic