Budget 27 – Business Tax
Budget 2027. Corporation Tax. Business Tax. Research and Development (R&D) Tax Credit. Preliminary Tax.
Budget 2027 was announced today, 6th October 2026, setting out the Government’s tax and spending priorities. In particular, five targeted enhancements to Ireland’s research and development (R&D) tax credit were introduced.
R&D Tax Credit
Higher Limits for Subcontracting R&D
The government is increasing the limits for subcontracting R&D work. This change applies to both higher education institutions and unconnected third parties.
The New Rules: The cap will rise to 20% of your in-house R&D spend or €200,000 (whichever is greater).
The Current Rules: Previously, the level of qualifying subcontracted expenditure was capped at 15% or €100,000.
Boosted Cash Flow for Smaller Projects
The first-year payment threshold will rise from €87,500 to €105,000. Therefore, companies claiming €105,000 or less will receive their full refund benefit in year one.
In addition, claimants with credits between €105,000 and €210,000 will receive their refunds much faster than larger firms. Ultimately, this change directly improves cash flow and funding access for small and medium-sized enterprises (SMEs).
Easier Preliminary Corporation Tax Offsets
The Minister announced changes to provide for a simplification measure to improve recognition of the R&D tax credit when calculating Preliminary Tax.
New 5% Wage Cost Bonus
A new provision will allow claimant companies to increase their qualifying cost base. Specifically, you can now add 5% of your qualifying R&D wage costs to your claim, provided you meet minimum expenditure rules.
In other words, eligible claimant companies can increase this base by 5 percent of their qualifying R&D wage costs. However, they must first incur a sufficient level of overall expenditure to qualify.
Simplified Science Test for Clinical Trials
Finally, an upcoming amendment will simplify the application process for life sciences. If a clinical trial is legally regulated, this status may satisfy the necessary “science test.”
This practical measure recognizes the vital R&D work Irish companies do during global trials. Furthermore, it should greatly reduce the administrative burden on businesses.
Knowledge Development Box (KDB) Extended to 2032
The Tánaiste recently confirmed a major extension for the Knowledge Development Box (KDB) relief. The government will extend this tax incentive until 1st January 2032. Additionally, the update introduces a new flexibility. Existing claimant companies can now choose to elect out of the KDB regime entirely.
Major Reforms to Preliminary Corporation Tax Rules
The Tánaiste recently announced significant changes to preliminary corporation tax (PT) rules. Here is a breakdown of what is changing.
Higher Threshold for Large Companies
Your preliminary tax obligations depend heavily on whether your business counts as a small or large company.
The New Rules: The government is increasing the large company monetary threshold to €350,000.
The Current Rules: Previously, you were classified as a large company if your corporation tax liability exceeded €200,000 in the prior accounting period.
New Flexible Top-Up Mechanism
Currently, large companies must pay their preliminary tax in two separate instalments. The second instalment must bring the total payment up to at least 90% of the final tax liability for the current accounting period, with the balance of tax outstanding for the period being paid on or before the company’s specified tax return filing date.
However, the government is introducing an amendment to create a much fairer top-up mechanism. Under the new rules, you satisfy your tax requirements if you pay 80% of the current year liability by the second instalment date. You can then make a top-up payment to reach 100% of the liability within four months after your accounting period ends.
Removal of Harsh Interest Penalties
Previously, if a company missed its Preliminary Tax deadlines, Revenue applied statutory interest. The rules accelerated your payment schedule so that 45% of your tax was deemed due back in month six and 100% was deemed to be due in month eleven of the accounting period.
Fortunately, the Tánaiste announced the complete removal of this 45% deeming provision. An underpayment of the second instalment of preliminary tax does not result in a deemed underpayment of the first instalment, in circumstances where the first instalment payment did not represent at least 50% of the prior year liability.
Four-Year Extension for Start-Up Corporation Tax Relief
The government is extending the Relief for Certain Start-Up Companies by four full years. Eligible new businesses can now claim this tax relief until 31st December 2030. Specifically, this incentive (governed by Section 486C of the Taxes Consolidation Act 1997) provides crucial tax relief during a company’s early growth phase.
How the Start-Up Relief Works
The scheme supports qualifying new businesses during their first five years of trading. The relief applies based on your annual corporation tax liability:
Full Relief: Available for companies with an annual corporation tax liability of less than €40,000.
Marginal Relief: Available on a sliding scale for companies with a tax liability between €40,000 and €60,000.
Please note that the government caps this overall relief by reference to certain PRSI contributions paid by the company.
Extension for Key Corporate Investment Reliefs (EII, SCI, and SURE)
The government announced an extension for three vital funding schemes that support Irish businesses. This extension applies directly to the Employment Investment Incentive (EII), the Start-Up Capital Incentive (SCI), and the Start-Up Relief for Entrepreneurs (SURE).
However, this update depends on the formal adoption of the new EU State aid General Block Exemption Regulation (GBER).
Relief for Investment in Innovative Enterprises (Angel Investor Relief)
The Tánaiste announced his intention to extend Angel Investor Relief in its current format. This extension is subject to the adoption of the new EU State aid GBER, which is due to be adopted by the end of 2026. Angel Investor Relief is available to individuals and allows a qualifying investor to avail of a reduced CGT rate of 16% (or 18% in the case of investments made via a partnership) on a gain arising on the sale of a qualifying investment in a qualifying company subject to certain conditions. Angel Investor Relief aims to support increased investment in innovative start-up businesses
Important Updates to EU Minimum Tax Directive (Pillar Two Rules)
Ireland is to introduce key amendments to Part 4A of the Taxes Consolidation Act 1997. These changes will align Irish law with the EU Minimum Tax Directive. This directive enforces the global Pillar Two rules developed by the OECD.
New OECD Safe Harbours Introduced
Following a recent international agreement, Ireland must implement new rules within specified timeframes. Specifically, this update introduces five critical safe harbours to help businesses manage their tax compliance:
- Transitional Country-by-Country Reporting Safe Harbour (extended)
- Simplified Effective Tax Rate Safe Harbour
- Substance-based Tax Incentive Safe Harbour
- Ultimate Parent Entity Safe Harbour
- Side-by-Side Safe Harbour
Flexible Timelines for Enhanced Reporting Requirements (ERR)
The Tánaiste announced a change to the Enhanced Reporting Requirements (ERR) timeline. Starting from 1st January 2027, taxpayers will gain much-needed flexibility when reporting tax-free benefits.
What are the New ERR Reporting Options?
Currently, real-time reporting places a heavy administrative burden on companies. Under the new rules, employers can choose between two flexible reporting paths:
Option 1: Report the information on or before you provide the tax-free benefit.
Option 2: Report the information by the 14th day of the following month.
Consequently, this new monthly reporting window will significantly ease pressure on internal payroll teams.
Professional Services Withholding Tax (PSWT)
The Tánaiste announced that the standard 20% Professional Services Withholding Tax (PSWT) rate will be replaced. Instead, Revenue will introduce new ‘Personalised Deduction Rates’. This change is subject to a commencement order.
Upcoming PRSI Contribution Rate Increases
The government previously confirmed in Budget 2024 that all PRSI contribution rates will rise gradually over a five-year period.
Recently, all classes of PRSI increased by 0.15 percentage points on 1st October 2026.
Future PRSI Timeline
To help businesses plan ahead, the government will phase in the remaining changes over the coming years:
From 1st October 2027: Rates will increase by a further 0.15 percentage points.
October 2028: Rates will rise by a final 0.2 percentage points.
Consequently, employers should update their payroll forecasts to account for these upcoming statutory changes.
The Minister for Social Protection will increase the threshold for the lower rate of Employers’ PRSI from €552 to €600 per week for 2027.
For full information, please click: https://www.gov.ie/en/department-of-public-expenditure-infrastructure-public-service-reform-and-digitalisation/publications/your-guide-to-budget-2027/
For all your Business and Corporation Tax compliance and advisory requirements, please contact us at info@accountsadvicecentre.ie
Please be aware that the information contained in this article is of a general nature. It is not intended to address specific circumstances in relation to any individual or entity. All reasonable efforts have been made by Accounts Advice Centre to provide accurate and up-to-date information, however, there can be no guarantee that such information is accurate on the date it is received or that it will continue to remain so. This information should not be acted upon without full and comprehensive, specialist professional tax advice.
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