Staff time allocation for the R&D tax credit: what Revenue expects

Revenue allows the same share of an employee's emoluments as the share of their time spent carrying on qualifying R&D. Its manual asks you to record the basis for that split, the system that captures it and who reviews it. The split can follow the work, but it must be complete before the claim on the CT1.

The rule: share of time, share of pay

Section 4.3 of Revenue's R&D tax credit manual (Tax and Duty Manual Part 29-02-03): “where an employee spends an identified proportion of their time ‘in the carrying on’ of qualifying activity, then that same proportion of their emoluments may be considered to be qualifying expenditure.”

Emoluments may be taken to include the reward package: pension contributions where pension is a contracted part of pay, bonuses, health insurance, holiday entitlement and public holidays. In the manual's words, all employment expenses “which are operated through the PAYE/PREM payroll system should be considered to be emoluments, and apportioned”.

Revenue's worked example: an employee spends 60% of their time on qualifying R&D and costs €97,000 in total (salary of €80,000, employer contributions of €15,000, health insurance of €2,000). The allowable cost is €58,200, which is 60% of the total (Example no. 13).

The 95% rule, for periods ending 31 December 2026 or later

Finance Act 2025 added a simplification. Where an employee performs at least 95% of their employment duties in qualifying R&D, “100% of that employee's emoluments will be regarded as expenditure incurred by the company in the carrying on by it of R&D activities”. Revenue applies it, in general, to expenditure in accounting periods ending 31 December 2026 or later; the statute ties it to periods with a specified return date on or after 23 September 2027 (section 4.3 and footnote 29, section 766(1B)).

Revenue calls it “a level of simplification in respect of documentation requirements relating to time apportionment”. Below 95%, the proportional rule above still applies.

What Revenue asks you to show

Item 18 of Appendix 3, Revenue's suggested file layout, lists the staff cost details Revenue would expect to see: the qualifications and experience of the project leaders; the names, qualifications, job titles and location of the staff, “and details of how staff were allocated to various aspects of the project”; and, where staff work on this and other projects, the allocation basis.

For that basis, item 18(c) asks for a description of the system used to record work, which “should at a minimum identify when staff record their work, who reviews, in that regard how the qualifying element of the project is identified”.

Timesheets are Revenue's first example, with when they were created, when they were reviewed and who reviewed them; records kept for a grant awarding body are another. Section 8 of the manual goes wider: “Where a company maintains effective electronic records, for example relating to project management or staff attendance, these will meet the record-keeping requirement.” The layout itself is illustrative (footnote 67), so treat item 18 as the questions to be able to answer, not a format to copy.

Timely, not contemporaneous, and what that does not cover

Item 18(d) lets the split itself come after the work: “while this may not be done on a contemporaneous basis it should be done in a timely basis e.g. month in arrears, quarter end review, it is imperative the allocation is completed prior to R&D claim on CT1 and that supporting documentation is available for review”.

That flexibility covers the split, not the records underneath it. Section 8 still requires that “contemporaneous records, whether in a hard copy or electronic format, must be available for inspection by Revenue officials”. Section 8.4 asks for entries made “on a timely and consistent basis”, records kept “on a continuous basis”, and “reliable assurances as to the integrity of the records, including the author/creator and date of creation of each record”.

Apportioning costs generally

For apportioning R&D expenditure generally, not only staff time, section 8.2(h) says the allocation factor must provide “a reasonable nexus with the costs incurred”, and: “Revenue will accept the company's allocation where it is clear that the management accountant, financial director or an appropriate director with knowledge of the company documents, chooses the percentage of the overall costs to be allocated, if that choice is bona fide, reasonable, and based on the facts of the individual claim.” For staff, section 8.2(d) separately asks for the people on each project, “their qualifications and the amounts of their time allocated to the project”, and item 18 for the system behind it.

Where allocations go wrong

Each of these comes from the manual itself.

• Employment overheads. HR costs, payroll team costs, canteen costs “or similar” are not eligible: they may be incurred in connection with the R&D, but not in carrying it on (section 4.3).
• Benefits the company does not bear. A benefit paid by the company “but not ultimately borne by the company” is not allowable (section 4.3).
• Directors' pay out of line. For proprietary directors and others who can set their own pay, payments “significantly out of step with the normal emolument practice of the company will generally not be regarded as eligible expenditure” (footnote 28).
• Agency staff counted as employees. Agency staff are treated as outsourcing, with the outsourcing limits that come with it. An individual consultant counts as a direct staff cost only if four conditions all hold, including working on the company's premises under its control and direction, and an engagement of no more than six months (sections 4.4 and 4.4.1).
• Time after the R&D ends. “Costs incurred after the R&D phase is completed do not qualify for the tax credit”, and the date the uncertainty is resolved is “a determining factor” in where the R&D ends (section 8.2(a)).
• A split finished after the claim. Item 18(d): the allocation must be completed before the claim on the CT1.
• The 95% rule applied too early. It applies, in general, to expenditure in accounting periods ending 31 December 2026 or later (section 4.3 and footnote 29).

The allocation can be examined too

If Revenue appoints an independent expert under section 766(7) to examine the science, the expert can be asked to help the case manager further. Revenue's template engagement letter: “This could for example involve commenting on the allocation of certain resources to the R&D projects” (Tax and Duty Manual Part 29-02-05, Appendix II). Our guide to Revenue's section 766(7) expert covers how that works.