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Did you know that your fixed assets could be eligible for 100% tax relief?
You can claim Research and Development (R&D) Capital Allowances on capital expenditure associated with R&D activities, which will provide you with a very generous relief rate and increase your corporate tax saving.
When combined with R&D tax credits, companies could reduce their taxable profits.
R&D Capital Allowances (RDAs) can be used to write down R&D expenditure on fixed assets. They are uncapped (unlike the Annual Investment Allowance or the AIA, which is capped at £1m, soon to go back to £200,000) and can be claimed retrospectively, up to two years in arrears.
RDAs can significantly reduce your company's Corporation Tax with its 100% tax relief rate, outperforming against Plant and Machinery Allowances (PMAs, 8-18% rate of relief) and the AIA (capped tax relief). Their generous and uncapped rate is very attractive, particularly for assets not covered by PMAs or the AIA.
Most of the capital expenditure that’s incurred during R&D activities is treated as qualifying expenditure. All eligible R&D activities are outlined in the Department of Business, Innovation and Skills (BIS) guidelines for R&D. But, to summarise: Qualifying R&D activities are any activities that seek to advance science and technology through technological challenges, as deemed by a competent professional. R&D is never limited to a specific field or company size; however, RDAs most often apply to companies who heavily engage in R&D activity.
RDAs are available on buildings designated as spaces for R&D. This is good news for people looking for a replacement for the Industrial Building Allowance, which was scrapped in 2010. When the R&D centre is part of a larger building, the RDA claim is only available on the entirety of the building, if the R&D centre is at least 75% of the total cost; if under 75%, the building should be apportioned based on floor space.
Laboratory equipment and company cars for R&D staff are more obvious examples of qualifying capital expenditure. However, RDAs can also apply to equipment that’s been purchased to make a technological advance, or the development of a new information technology system, or even the demolition of an asset. The main exceptions to RDA expenditure eligibility are land and the cost of intellectual property.
RDAs go hand in hand with R&D Tax Credits, offering innovative companies two UK government advantages for their R&D activities. Instead of fixed assets, R&D tax credits cover operational costs, like staff costs, subcontractors, and consumables; you cannot claim RDAs and tax credits on the same expenditure. By writing off your fixed assets in the year of acquisition, you reduce your taxable profits. If combining RDAs with R&D tax relief creates a taxable loss, you can surrender those losses for a tax credit payable (cash) at a rate of 14.5%. The maximum loss that can be surrendered is 2.3x the value of the R&D expenditure that qualifies for R&D tax relief.
Claiming RDAs relies on your accounting records being accurate and your tax computations and Company Tax Return (CT600) correctly reflecting the RDA. Other than these legal obligations for claiming RDAs, HMRC also finds it helpful if you provide a schedule of the eligible expenditure and a short briefing of the project to explain the purpose of the capital expenditure and confirm its relation to your trade.
You can claim RDAs up to two years after the end of the accounting period, coinciding with the deadline for R&D tax relief claims. Claiming the two together makes perfect sense and allows you to make the most of your expert R&D tax relief advisor's advice.
Choosing a R&D tax relief advisor can be tricky – making sure your advisor understands the nuances and benefits of RDAs, particularly in conjunction with other allowances, will ensure you don't miss out on some of the most generous tax relief rates the UK government offers.
Myriad Associates are a leading specialist in R&D Tax relief and RDA claims. Feel free to give us a ring on 0207 118 6045 or drop us a message if you'd like to know more about how we can help you maximise your tax relief claims.