07 October 2026
Budget 2027 introduces a further package of changes to Ireland’s R&D Tax Credit, including increased subcontracting limits, earlier access to the credit, a new wage-cost enhancement and measures for regulated clinical trials.
Budget 2027 brings a further package of improvements to Ireland’s R&D Tax Credit, building on the increase in the headline credit rate from 30% to 35% introduced by Finance Act 2025.
That 35% rate applies where the corporation tax return for the relevant accounting period is due on or after 23 September 2027, which in practice means accounting periods ending on or after 31 December 2026.
But this time, the story isn’t really about the headline rate. Instead, the Government has focused on some of the practical realities businesses face when undertaking R&D: employing specialist people, working with external partners and research institutions, participating in regulated clinical trials, managing cash flow and dealing with the mechanics of the tax system.
Five further measures have been announced. While some are potentially more significant than others, together they point towards an R&D Tax Credit that could become both more valuable and easier to use for a range of businesses.
1. More flexibility for subcontracted R&D
One of the most immediately identifiable changes is an increase in the limits applying to subcontracted R&D. The existing limits on R&D subcontracted to third parties and third-level institutions will increase from 15% to 20%, while the alternative monetary threshold will double from €100,000 to €200,000.
This matters because R&D increasingly isn’t something businesses undertake entirely within their own four walls. Companies may need to bring in specialist scientific or technical expertise, commission particular elements of development work, collaborate with universities or access capabilities and facilities they don’t have internally.
The existing restrictions can limit how much of this expenditure is recognised within an R&D Tax Credit claim. Increasing the limits should therefore allow some businesses to bring more of their genuine R&D expenditure within the calculation.
This is also consistent with the direction set out in the Government’s R&D Tax Credit and Innovation Compass, published in February 2026, which specifically identified subcontracting as an area for further work.
For companies already making substantial use of subcontractors or third-level institutions, this is an area worth revisiting once the detailed rules and commencement provisions are confirmed.
2. More of the credit available sooner
The first-year payment threshold will increase from €87,500 to €105,000. Interestingly, the €87,500 threshold introduced by Finance Act 2025 has itself , of course, not yet taken practical effect. Budget 2027 is therefore increasing the threshold again before businesses have begun receiving claims under the previous limit.
The way the threshold operates is also important. The first instalment of the R&D Tax Credit is generally the greater of the applicable threshold or 50% of the total credit, subject to the amount of the claim itself.
With a €105,000 threshold, a claim of up to €105,000 could therefore be received in full in the first instalment. For claims between €105,000 and €210,000, more than half of the total credit could be available in the first instalment.
So, while the Minister described the measure as providing cash-flow support for smaller R&D projects, it is perhaps more accurately viewed as improving cash flow for businesses with smaller R&D Tax Credit claims. And the timing of an incentive can matter almost as much as its overall value, particularly for smaller and growing businesses funding continued development activity.
3. A new enhancement for qualifying R&D wage costs
Potentially the most significant announcement is the introduction of a new enhancement in respect of qualifying R&D wage costs.
The precise value and mechanics of the enhancement will depend on the detailed legislation, so it is too early to quantify what this could mean for individual businesses. It is important, however, to distinguish this new measure from another employee-related change introduced by Finance Act 2025.
That earlier change is an administrative simplification: where a company can demonstrate that an employee spends at least 95% of their time on qualifying R&D activities, 100% of their relevant emoluments can be treated as qualifying expenditure.
The Budget 2027 announcement refers separately to a new enhancement for qualifying R&D wage costs. On the information available so far, this therefore appears to go beyond the existing 95% simplification – and its potential importance is clear.
For many R&D-intensive companies, people are their biggest investment. Scientists, engineers, software developers and other technical specialists can account for a substantial proportion of the expenditure associated with R&D. An additional enhancement specifically targeted at qualifying wage costs could therefore have a meaningful impact on the overall value of the R&D Tax Credit for businesses employing significant R&D teams in Ireland.
It is also notable that the R&D Tax Credit and Innovation Compass did not propose a wage enhancement in this form. This appears to represent a genuinely new development in the direction of the regime.
Companies with significant qualifying technical workforces should therefore pay particularly close attention to the detailed provisions when they are published.
4. A simpler route for regulated clinical trials
Budget 2027 also contains a particularly interesting measure for Ireland’s pharmaceutical, biotechnology, medtech and wider life sciences sectors. Where a clinical trial is regulated, that fact may be used to satisfy the science test for R&D Tax Credit purposes – and that could be an important practical simplification.
Companies involved in clinical research can already operate within highly regulated environments, yet may still need to demonstrate separately that the underlying activity satisfies the scientific requirements of the R&D Tax Credit. Recognising the regulated status of a clinical trial when considering the science test should reduce some of that administrative burden.
The Minister’s specific reference to recognising R&D undertaken by Irish companies as part of global trials is also significant. Clinical research is frequently international, with Irish businesses and research teams contributing to much larger trials involving multiple countries and organisations. The change should provide greater recognition of the R&D contribution made in Ireland within these global clinical trials.
For Ireland’s substantial life sciences sector, this could prove to be one of the more important practical changes in Budget 2027.
5. Improving the preliminary tax treatment
The fifth measure is more technical but potentially useful from a cash-flow perspective.
Under the existing rules, where a company elects for its first R&D Tax Credit instalment to be treated as an overpayment and offset against its corporation tax liability, that amount can already be taken into account when calculating preliminary corporation tax. However, this treatment currently applies only to the first instalment.
The R&D Tax Credit and Innovation Compass recorded stakeholder requests for the second and third instalments to receive similar treatment.
Budget 2027 now promises a simplification measure to improve recognition of the R&D Tax Credit for preliminary tax purposes. The precise mechanism will need to be confirmed in the legislation, but extending recognition beyond the first instalment would make the treatment of the credit more straightforward and potentially improve cash-flow planning.
It may sound like a relatively technical change, but it reflects a wider theme running through this Budget: making the R&D Tax Credit work better in practice, rather than simply changing its headline value.
From increasing the rate to improving the regime
Taken together, the Budget 2027 announcements represent an interesting evolution of Ireland’s approach to R&D incentives.
Recent changes have concentrated heavily on the value of the credit, including the move from 30% to 35%.
Budget 2027 goes further into the mechanics of the regime.
Some of these changes also take forward areas identified in the Government’s R&D Tax Credit and Innovation Compass, while the wage-cost enhancement appears to represent a new development beyond the specific measures considered there.
What should businesses do now?
There is an important distinction between measures being announced and businesses being able to calculate their benefit immediately. Further detail will be needed, particularly around the new enhancement for qualifying R&D wage costs and the precise operation and commencement of the other changes.
However, businesses don’t necessarily need to wait before considering where the opportunities may lie. Companies undertaking R&D in Ireland should start by looking at the shape of their existing activity.
How much qualifying R&D expenditure relates to employees? How extensively does the business use subcontractors or collaborate with third-level institutions? What proportion of its R&D Tax Credit is currently deferred into later instalments? Is the company involved in regulated clinical trials in Ireland or contributing to global clinical trials?
Those questions can help identify where Budget 2027 is most likely to make a difference.
A positive direction for R&D in Ireland
Budget 2027 doesn’t radically redesign the Irish R&D Tax Credit – and nor does it need to.
Instead, it builds on the significant enhancements already made to the regime and targets several areas where further improvement can potentially increase its value or make it work better in practice.
For some businesses, the financial impact could be direct, through higher qualifying subcontracting expenditure, earlier access to the credit or the new wage-cost enhancement. For others, particularly those involved in regulated clinical trials, the benefit may come through greater clarity and reduced administrative burden.
The detail will now be important, especially around the wage-cost enhancement.
But the overall direction is positive: having strengthened the headline value of the R&D Tax Credit, Ireland is increasingly turning its attention to making the regime reflect how modern R&D is actually undertaken and to removing some of the practical friction businesses encounter when accessing it.
