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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, this capital expenditure could be eligible for Research and Development Allowances (RDAs).
R&D Capital Allowances (RDA’s) allow you to write down your R&D spending on fixed assets. Unlike the Annual Investment Allowance, RDA is not capped and the best news is that R&D Capital Allowances can be claimed retrospectively, up to two years in arrears.
By offering 100% tax relief on most R&D capital expenditure, Research and Development Capital Allowances can significantly reduce your company’s corporation tax.
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.
Research and Development Allowances are available on industrial buildings that have a designated R&D area. This is good news when you consider Industrial Building Allowance were removed back in February 2010. In the case where an R&D centre forms part of a larger building, then RDA is available on the entire building providing the R&D centre is at least 75% of the total cost. In cases where it is less than 75% then the building needs to be apportioned based on floor space.
Capital expenditure on laboratory equipment and company cars for R&D staff would be obvious candidates for RDAs, however capital expenditure can also be 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.
Research and Development Allowances and R&D tax credits complement each other. RDAs relate to expenditure on fixed assets, whilst R&D tax credits cover operational costs such as staff costs, contractors and consumables. By making an RDA claim you are writing off fixed assets in year of acquisition and therefore reducing your taxable profits. If RDAs together with R&D tax relief creates a taxable loss, then you can surrender these losses for a tax credit payable (cash) at a rate of 14.5%. The maximum loss that can be surrendered is 2.3 times the value of the R&D expenditure that qualifies for R&D tax relief.
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 an 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 the Industrial Buildings Allowance, the monetary benefit in claiming RDAs is greatly increased. RDAs and R&D tax credits go hand in hand and can release cash back into your business through surrendering tax losses for a payable credit.
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’d like to know how we can help you make a claim.