R&D Capital Allowances

R&D Capital Allowances allow you to claim for any fixed assets that have been purchased for R&D activities. These can range from equipment and research costs to expenses for building renovations.

When you file an RDA with HMRC, you’ll need to make sure the RDA is reflected correctly in your tax computations and CT600, that all your R&D expenditure is recorded and eligible and you include a project brief that explains why these capital expenditures were made and how they relate to the industry you’re in.

You will need to provide evidence to show:

• The company is undertaking eligible R&D activity
• The costs are capital in nature and qualify under GAAP

The costs were incurred in the relevant period

You can claim R&D Capital Allowances (RDAs) up to a year after the tax return deadline. This means you could potentially claim RDAs for up to 2 years after the accounting period that their costs were incurred.

Because this is also true for R&D tax credits, it’s a good idea to claim both allowances at the same time.

Yes. You can’t claim RDAs and R&D tax credits on the same expenditure, but you can claim them both in the same year on different expenditures. The trick is to ensure you maximise the tax reliefs that give you the best possible outcomes.

R&D Tax Credits usually only apply to the R&D costs that are incurred on a day-to-day basis (eg. staff wages), as opposed to expenditure on capital assets (eg. buildings)

To summarise the differences between the two:

RDAs apply to capital expenditure on things like plant machinery, facilities and buildings (not land). The biggest benefit of RDAs is that you’ll get 100% first-year capital allowance, so no tax relief on up to 19% on the cost of the asset.

R&D tax credits apply to operational / revenue expenditure on things like salaries, consumables, subcontracting and software. The biggest benefit of R&D tax credits is that you can claim up to 33% of the R&D costs incurred.

An RDA must be claimed within 2 years. There is no clawback of the tax relief if the company stops using the equipment for R&D purposes, whether that is during the period or after.

Most R&D related capital expenditure qualifies for a tax reduction under R&D Capital Allowances. Exceptions include spending on intellectual property and land.

Spending on the following is always eligible:

• Purchase, construction or refurbishment of R&D facilities or property. If an R&D centre is part of a larger facility – and if the centre accounts for at least 75% of the overall cost of the facility – then R&D Capital Allowances can apply to the entire facility
• Laboratory equipment
• Company cars for R&D staff

Spending on the following may be eligible:

• Developing internal IT systems
• Equipment that enables you to make a technological advancement in a process, material, device, product, or service

R&D Capital Allowances are a form of tax relief. They allow you to claim 100% tax relief on any eligible capital expenditure that’s related to your R&D activities.

So, if you’re spending money on assets that are helping you to develop or improve products, processes, materials, or services, or resolve scientific or technological uncertainties, then you could be eligible for R&D Capital Allowances.

Don’t overlook R&D Capital Allowances if you have:

• Bought, refurbished, or developed property for R&D purposes
• Invested in plant, machinery, fixtures, or fittings to support R&D activity
• Implemented internal IT systems for R&D

Contact Myriad Associates to get the ball rolling on your R&D Capital Allowances claim.

Expenses that qualify for RDAs:

• Plant Machinery
• Research equipment
• Research and development facilities
• Internal IT systems
• Purchase, construction or extension of property (not the purchase of land though)
• Company cars (that are used for R&D purposes)

Activities that qualify for RDAs:

If your project is eligible for R&D tax credits, you should be claiming R&D Capital Allowances for any capital expenditure. Activities such as developing or improving materials, products, services and processes would be eligible for an RDA claim.

R&D Capital Allowances is a generous scheme that provides you with another revenue stream to support your R&D projects.

Benefits:

1. Uncapped claims
   Unlike Plant and Machinery Allowances (PMA) or Annual Investment Allowances (AIA), with R&D Capital Allowances the tax relief isn’t capped and there is no maximum limit to the amount you can claim.
   
   
2. Claim retrospectively
   Rather than being too late to make a claim or having to wait more than 20 years to get the full tax relief, you can claim R&D Capital Allowances up to 2 years after the accounting period that their associated costs were incurred.

3. Cashflow boost  
   With 100% tax relief available on R&D capital expenditure, RDAs are a great funding stream, especially if you’ve invested in buildings or facilities for your R&D: For every £100 spent you can get up to £19 back.
   
   
4. Covers most assets
   You can receive 100% tax relief on the purchase of pretty much any R&D buildings, equipment, internal IT systems and facilities. These are expenses that aren’t covered in other capital allowances.