Ireland R&D Tax Credit 35% in Budget 2026: What It Means For Your Business

From 2026, the Irish R&D tax credit rate will rise from 30% to 35% for all qualifying R and D expenditure, a change that materially increases the value of innovation tax relief Ireland offers to SMEs and larger groups alike.

Key Takeaways

Question	Answer
What is changing in the Ireland R&D tax credit 35% Budget 2026?	The rate increases from 30% to 35% and the first year payment threshold rises from €75,000 to €87,500 for qualifying R and D spend in accounting periods starting on or after 1 January 2026.
Who benefits most from the R&D tax credit increase Budget 2026?	Irish SMEs, startups, and innovation intensive businesses in sectors like tech, manufacturing and services that already incur or plan to incur eligible research and development costs.
Is the higher rate only for large companies?	No, the 35% rate applies universally to all qualifying R&D expenditure, which strengthens R&D tax incentives for startups Ireland as well as for multinationals.
Where can I find the official Irish research and development relief guidance?	You can read Revenue’s guidance at Research and Development (R&D) Tax Credit.
How to claim R&D tax credit Ireland efficiently?	Review the detailed tax and duty manual at Part 29 R&D Tax Credit Guidance and align your projects, cost tracking and documentation with Revenue’s definitions.
What kind of activities can qualify as “hidden R&D” in SMEs?	Process improvements, software development, engineering problem solving and systematic testing may all qualify if they seek scientific or technological advancement and are properly documented.
When should finance managers act?	Now, to map 2026 onward projects, budgets and accounting periods so that the 35% corporation tax relief for R&D Ireland offers is built into funding and cash flow planning.

1. Budget 2026: R&D Tax Credit Increases To 35% And Why It Matters

Budget 2026 confirms a further step up in Irish research and development relief, lifting the R&D tax credit rate to 35% for qualifying expenditure and signalling a stronger policy commitment to innovation.

For Irish SMEs, startups and finance managers, this change can convert existing and planned R and D projects into larger tax savings or cash refunds, improving both competitiveness and funding options.

We view this increase as cautiously positive for Ireland’s long term R&D intensity, especially as the measure sits alongside a broader policy objective to raise national R&D investment by 2030.

However, the benefit is only realised where companies identify qualifying activities correctly and file robust, well documented claims.

2. How The Irish R&D Tax Credit Works In Plain English

The R&D tax credit is a form of corporation tax relief for R&D Ireland provides to companies that carry out qualifying research and development within the European Economic Area, including Ireland.

In simple terms, a company can claim a percentage of qualifying R and D costs as a tax credit, which it can set against corporation tax or, in many cases, receive as a payable credit over time.

Qualifying R and D activities

To qualify, projects must aim to achieve scientific or technological advancement and involve the resolution of scientific or technological uncertainty, not just routine work.

Activities can include in-house development, improvements to existing products or processes, and certain outsourced and collaborative projects, subject to Revenue’s limits and definitions.

What types of costs can qualify

Typical qualifying costs include R&D staff salaries, employer pension contributions, consumables, software used directly in R and D, certain subcontracted R and D and a share of overheads on a just and reasonable basis.

From Budget 2026 onwards, there is a simplification for dedicated R&D staff, where 100% of an employee’s emoluments can qualify if at least 95% of their time is spent on qualifying R&D work, which can materially increase eligible spend for focused teams.

Cash refunds are paid over a three year period where the credit exceeds the corporation tax liability, with the first instalment subject to a cap that Budget 2026 has now increased.

This structure turns R&D tax incentives for startups Ireland into a practical funding tool rather than a distant tax concept.

3. Key Budget 2026 R&D Changes: Rate And First Year Payment Threshold

Budget 2026 introduces two headline changes for Irish research and development relief, both of which are positive for companies already investing in innovation or planning to start.

These are the increase in the core rate to 35% and the rise in the first year payment threshold to €87,500.

Rate increase from 30% to 35%

For accounting periods commencing on or after 1 January 2026, the core Ireland R&D tax credit 35% rate will apply to all qualifying R and D expenditure, rather than the 30% rate in effect immediately before.

This 5 percentage point uplift increases the effective subsidy on eligible spend and brings Ireland closer to the upper tier of international R&D support regimes.

Higher first year payment threshold

The first year payment threshold for instalment refunds rises from €75,000 to €87,500, which particularly benefits smaller claimants and early stage projects.

For many SMEs, this means more of the credit can be received as a cash payment in year one, improving cash flow and reducing the lag between spend and benefit.

The Budget also confirms that the measure has a significant Exchequer cost, estimated at €232 million in 2026 and €681 million in a full year, which illustrates the scale of the government’s commitment.

From our perspective, this underpins a medium term policy direction rather than a short term experiment.

4. Practical Euro Examples: How Much Extra Relief At 35%?

To make the R&D tax credit increase Budget 2026 more tangible, we set out two simple examples that show how much extra relief companies can expect once the 35% rate applies.

These examples are simplified and assume all spend is qualifying R and D and that the company can fully utilise or receive the credit, but they illustrate the direction of change clearly.

Example 1: SME with €200,000 qualifying R and D spend

At the current 30% rate, a company spending €200,000 on eligible R and D can claim a tax credit of €60,000.

At the 35% rate from Budget 2026, the same spend generates a tax credit of €70,000, an extra €10,000 of corporation tax relief or cash refunds.

Scenario	Qualifying R&D Spend	Credit Rate	Tax Credit Value
Before Budget 2026	€200,000	30%	€60,000
From Budget 2026 onwards	€200,000	35%	€70,000

Example 2: Startup with €400,000 qualifying R and D spend

A scaling startup investing €400,000 in qualifying R and D currently receives a 30% credit of €120,000.

At 35%, the credit becomes €140,000, which is an additional €20,000 available either as reduced corporation tax or staged cash payments, particularly valuable where venture funding is tight.

Scenario	Qualifying R&D Spend	Credit Rate	Tax Credit Value
Before Budget 2026	€400,000	30%	€120,000
From Budget 2026 onwards	€400,000	35%	€140,000

When layered with the higher first year payment threshold, these figures can significantly improve early stage cash flow for both SMEs and startups.

We encourage finance managers to plug their own project budgets into similar calculations so they can quantify the impact on internal rate of return and funding requirements.

5. Impact On Irish SMEs: Hidden R&D And Everyday Innovation

Many Irish SMEs carry out innovative work that would meet Revenue’s definition of qualifying R and D but are not currently claiming, often because they see R&D as something that only pharma or deep tech companies undertake.

In practice, “hidden R&D” is widespread in manufacturing, engineering, software, agri-tech and even service businesses where teams systematically solve technical problems or improve processes.

Examples of potential hidden R and D

• Developing a new production process to reduce waste or cycle time where the outcome was not known in advance.
• Building a bespoke software tool to integrate systems when off the shelf solutions were inadequate.
• Designing and testing new product variants that required technical experimentation and failure. 

With the Ireland R&D tax credit 35% Budget 2026 uplift, it becomes even more worthwhile for SMEs to review past and planned projects for eligibility.

Finance managers should work closely with engineers, developers and operations teams to map activities to R and D criteria and gather supporting evidence.

For some SMEs, formal R and D grants may still be appropriate, but the tax credit is often simpler to access and can sit alongside grant funding in a blended finance strategy.

We recommend a structured annual R and D review process as part of year end accounts and budgeting rather than treating claims as a one off exercise.

6. Startups, SaaS And Tech: Using The 35% Credit As Funding Support

R&D tax incentives for startups Ireland are particularly important in sectors where product development and customer acquisition happen well before profitability, such as SaaS and digital platforms.

For these companies, the 35% rate and improved first year payment threshold convert technical hiring and cloud infrastructure costs into a meaningful funding contribution.

Startup and tech considerations

In the startup and tech environment, qualifying R and D can cover backend platform development, algorithm design, data processing solutions and technical integrations that involve genuine uncertainty.

We often see founders underestimate the value of these activities in cash terms, especially where they rely heavily on equity finance.

• Map your product roadmap to potential qualifying R and D activities.
• Track developer time and tasks in sufficient detail to support a claim.
• Align your accounting periods so that major development phases fall into periods benefiting from the 35% rate.

As specialist startup and tech accountants, we see the 35% rate as a useful counterbalance to higher capital costs and international competition for engineering talent.

Used intelligently, the R&D credit can extend runway, reduce dilution and support a more sustainable growth trajectory.

7. Manufacturing, Engineering And Services: Sector Specific Opportunities

Manufacturing and engineering businesses are long standing users of Irish research and development relief, with R and D embedded in product design, tooling, automation and quality systems.

The 35% rate enhances the return on incremental improvements and strategic innovation projects that might otherwise be deferred in uncertain markets.

Manufacturing and engineering

• Process optimisation to reduce energy use or scrap rates where outcomes are uncertain.
• Design and testing of new product lines or variants for export markets.
• Integration of new machinery or robotics where significant technical problem solving is required.

Services businesses, including fintech, logistics, health tech and professional services, also increasingly carry out R and D through software, data and analytics projects.

Budget 2026 measures are expected to support more than 150,000 jobs in services sectors, which highlights the broad reach of the enhanced R and D regime.

We advise manufacturing, engineering and service firms to maintain a forward looking R and D pipeline so they can prioritise projects with the strongest combination of commercial and tax benefits.

Early engagement between technical and finance teams is key to ensuring that project scoping, time recording and procurement support a strong R and D claim.

8. Compliance, Documentation And Revenue Expectations

The higher value of the credit makes compliance and documentation even more important, because Revenue scrutiny tends to increase as Exchequer exposure grows.

In our experience, well prepared claims that align clearly with the legislation and guidance are usually processed without difficulty, while weakly documented claims face delays or reductions.

Core documentation finance managers should maintain

• Project descriptions that explain the scientific or technological advancement and uncertainty.
• Technical documentation, test results, prototypes and version histories that evidence iterative development.
• Time records, cost reports and allocation methodologies that link expenditure to R and D activities.

Finance teams should also document their approach to overhead allocation, subcontracting and intra group recharges so that it can be explained clearly if Revenue raises queries.

Embedding R and D tracking into everyday bookkeeping, payroll and project management systems reduces the cost and stress of claim preparation.

With the new 35% rate, Revenue is also expected to refine and clarify aspects of the regime through a planned “Research and Development compass”, which businesses should monitor for future changes.

We recommend an annual health check of your R and D claim process to ensure it keeps pace with evolving guidance and case law.

9. How To Claim R&D Tax Credit Ireland: Process Overview

The R&D tax credit is claimed through the corporation tax return for the relevant accounting period, with an accompanying computation and supporting schedules that show how the credit has been calculated.

Companies must make the claim within the statutory time limits and maintain records that demonstrate eligibility if Revenue requests further information or carries out an audit.

Typical claim steps for finance managers

1. Identify qualifying R and D projects and activities with input from technical teams.
2. Compile eligible costs by project, including staff, consumables, software and subcontractors.
3. Prepare a technical and financial summary that aligns with Revenue guidance.
4. File the corporation tax return including the R and D credit and choose how to utilise it (offset, refund or group relief where available).
5. Monitor payments and follow up on any Revenue queries.

Many businesses combine the R&D tax credit with other R and D grants or innovation programmes, so it is important to consider interactions, state aid limits and any clawback provisions.

Given the value of the Ireland R&D tax credit 35% Budget 2026, we see growing numbers of companies formalising their internal process and involving specialist advisors early in the year.

Early planning can also help ensure that payroll and project accounting systems capture the data needed to support the claim without manual reconstruction at year end.

For SMEs and startups, this planning effort is modest compared with the recurring cash benefit of a well managed R and D regime.

10. Strategic Outlook: Competitiveness And Long Term Innovation Funding

The increase to a 35% R&D tax credit rate is part of a broader pattern of incremental enhancements in Ireland’s innovation support over recent budgets.

Taken together with grant programmes and the wider corporate tax environment, it helps maintain Ireland’s appeal as a location for innovation intensive investment.

Competitiveness and policy direction

Internationally, jurisdictions continue to refine their R and D regimes, so it is important that Ireland’s offering remains credible and predictable for both domestic firms and multinational groups.

The universal application of the 35% rate across all qualifying expenditure is a helpful simplification that avoids fragmentation or arbitrary thresholds.

From a business perspective, the key is to integrate R and D tax planning with commercial strategy, budgeting and capital allocation rather than treat it as a retrospective compliance task.

We expect finance managers to play a growing role in steering R and D portfolios, assessing after tax returns and coordinating with technical leaders to prioritise projects.

We remain cautiously hopeful that the Ireland R&D tax credit 35% Budget 2026 will support a healthier innovation ecosystem across regions and sectors, provided businesses engage with it proactively.

The opportunity is particularly strong for SMEs and startups that have not previously claimed or have only claimed on a narrow set of activities.

Conclusion

Budget 2026’s increase of the R&D tax credit to 35%, coupled with a higher first year payment threshold, strengthens Ireland’s position as a supportive environment for innovation driven businesses.

For SMEs, startups and larger groups, this is both a funding opportunity and a call to professionalise R and D identification, documentation and claim processes.

We encourage finance managers, founders and technical leads to review their 2026 onward projects now, identify existing and planned R and D, and model how the enhanced credit could fund part of their development spend.

By treating Irish research and development relief as a core component of project economics rather than an afterthought, businesses can improve cash flow, reduce risk and support long term competitiveness in a measured and compliant way.