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Has your company built or refurbished development facilities, developed a major new IT system for internal use or spent money on plant, machinery, fixtures or fittings associated with R&D activities. If so, your capital expenditure could be eligible for Research and Development Allowances (RDAs).
Research and Development Allowances provide 100% capital allowances in the accounting period during which the expenditure is incurred. This is of great benefit considering Industrial Building Allowances were phased out in 2009/10 and also compares very favourably to the 18% reducing balance basis available for Plant & Machinery Allowances (8% on fixtures integral to a building). Also RDAs are not capped unlike the Annual Investment Allowance.
For capital expenditure relating to building or refurbishing a development facility then RDAs present a huge opportunity to reduce yourCompany tax bill especially as IBAs have been completely phased out.
The actual monetary value of claiming RDAs that would otherwise would have qualified for Plant and Machinery Allowances depends on your company’s cost of capital. The cash benefit in terms of a lower corporation tax bill will be reflected directly in your bank account and therefore you will receive an above the line benefit through a reduced interest expense or higher interest income. Based on a cost of capital of 5% over a 25 year period, RDA’s represents a net present value (NPV) saving of 28%*.
* Based on current corporation tax rates (23% for 2012/13) and Plant & Machinery Allowances (18% for 2012/13).
Most capital expenditure incurred for the carrying out of R&D and the provision of facilities for R&D is treated as qualifying expenditure. The main exceptions are land and the cost of intellectual property.
In the case where an R&D centre forms part of a larger facility, then RDA is available on the entire facility providing the R&D centre is at least 75% of the total cost. In cases where it is less than 75% then only the costs relating to the R&D centre is allowable for RDA purposes.
Capital expenditure on laboratory equipment and company cars for R&D staff would be obvious candidates for RDAs, however capital expenditure associated with the development of a new information technology system for internal use and equipment purchased to allow for a technological advancement in a process, material, device, product or service which incorporates or represents an increase in overall knowledge or capability in a field of science or technology could also be considered for RDA’s.
Apart from ensuing that you maintain and keep accurate accounting records and that your RDA is correctly reflected in your tax computations and Company Tax Return (CT600) then you have met your legal obligations to make a claim for RDAs. However, HMRC do find it helpful if you provide them with a schedule of the eligible capital expenditure and also a short project briefing to explain the purpose for undertaking the capital expenditure and confirming that it is relating to the trade that you carry out.
A company can make a claim for RDAs up to one year from the filing deadline for the tax return. This is in-line with the filing deadline associated with R&D Tax Relief claims. As a RDA claim sits hand in hand with R&D Tax Relief claims, it makes perfect sense to prepare and file these claims at the same time.
With the reduction in rates of capital allowances available for expenditure on plant and machinery, and the abolition of IBAs, the additional benefit in claiming RDAs is greatly increased. Myriad Associates are leading specialist in R&D Tax Relief and RDA claims and please feel free to contact one of our specialists how will within a matter of minutes confirm if you have an eligible claim.