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Research and development capital allowances (RDAs), previously known as the scientific research allowance, allow you to claim 100% tax relief on qualifying capital expenditure related to your company’s R&D activities. Unlike other Capital Allowances, such as the Annual Investment Allowance (AIA), there is no limit on the amount that can be claimed under the RDA scheme. A claim for RDA can complement a claim for R&D tax relief (R&D tax credits), as capital expenditure can’t be claimed in an R&D tax relief claim. As the scope of activities that can be considered R&D is so broad, companies often choose to work with a specialist adviser to help identify projects and capital expenditure that qualify as R&D, and for which you could be claiming to ensure you are not missing out.
R&D tax relief is much more accessible than many people think; essentially, your company must have a project which seeks to make an advance in science and technology or seeks to resolve scientific or technological uncertainties. If your company has a project that qualifies for R&D Tax Credits, you should also be claiming R&D Capital Allowances for any related capital expenditure. For Capital Allowance purposes, oil and gas exploration count as research and development.
R&D Capital Allowances apply to expenditure related to carrying out R&D activity and providing both facilities and means to carry out this activity. If your company is spending money on capital assets in order to create or improve products, processes or services, then you may be able to claim RDAs. RDAs cover the purchase of R&D equipment and internal IT systems as well as, crucially, facilities; these are often excluded from other capital allowances. R&D Capital Allowances include the purchase, construction or extension of property, but exclude the cost of land. If the R&D centre is more than 75% of the cost of the entire property, the capital allowances apply to their entire facility. Furthermore, expenditure on company cars used for R&D activities can be included in an RDA claim.
Here is an example:
Good Co. our hypothetical company, buys a laboratory solely for R&D purposes. The property, but not the land, qualifies for R&D Capital Allowances. They then purchase a car for an employee, who uses it to travel around the research sites. This also qualifies as R&D capital expenditure. However, the patent rights that Good Co. have bought do not qualify, as intellectual property is not considered R&D expenditure. They later buy another property for £1million, but part of the building forms a residence. Only 60% of the premises is actually used for R&D, so only £600,000 of the purchase price qualifies for R&D Capital Allowances.
R&D Capital Allowances offer the opportunity to claim 100% of the capital expenditure related to R&D activities against taxable profits. This is especially important for companies who are spending large amounts on R&D or who have bought or developed property to be used for R&D. This little-known tax benefit is often underutilised, however identifying areas in which your company can claim can be difficult and time-consuming. It is worth considering using an expert in R&D Capital Allowances to help you secure and maximise your entitlement to RDA tax relief.