Ben is a key employee of Develop Co., which has an accounting year end of 31 December 2022. Develop Co. decided to surrender €10,000 of its R&D credit for 2022 to Ben.
Ben seeks to claim this as a credit against the tax on his Income Tax from Develop Co. in 2023.
His total income is €120,000 and standard rate cut-off point for 2023 is €40,000.
Details of Ben's tax
| Details | Values |
|---|
|
Taxed €40,000 at 20%
|
€8,000
|
|
Taxed €80,000 (the balance) at 40%
|
€32,000
|
|
Total tax liability
|
€40,000
|
|
Less tax credits
|
€3,550
|
|
Income Tax payable
|
€36,450
|
Ben's effective rate of Income Tax must be determined to ensure that the minimum threshold of 23% is not breached.
The rate before the credit is 30.37% (€36,450/€120,000).
Details of Ben's claim for full R&D credit
| Details | Values |
|---|
|
Income Tax payable
|
€36,450
|
|
Less R&D credit
|
€10,000
|
|
Tax due after the credit
|
€26,450
|
The effective rate after the full credit is 22.04% (€26,450/€120,000). Therefore, Ben cannot use the full credit against the Income Tax on his salary in 2023.
He can only use so much of the R&D credit as to give a minimum effective rate of 23%.
Details of Ben's claim for restricted R&D credit
| Details | Values |
|---|
|
Income Tax payable
|
€36,450
|
|
Less restricted R&D credit
|
€8,850
|
|
Tax due after the credit
|
€27,600
|
Effective rate after the use of restricted R&D credit is 23% (€27,600/€120,000).