Research and Development Capital Allowances

What is R&D allowance? 

RDAs can be claimed for capital expenditures on R&D development, assets used for R&D, and providing facilities for R&D. R&D capital allowances provide a 100% tax relief rate of the cost incurred and unlike regular capital allowances, they provide the tax reduction across a wide range of expenditure types. In contrast to the Annual Investment Allowance or Full Expensing, RDAs are highly beneficial particularly for assets not covered by plant and machinery allowances or where the development relates to an asset with a lifetime over 25 years (long life assets). By making use of this scheme, your company could gain more access to cash that can be reinvested in future growth.

The types of assets that would benefit from an RDA claim could include:

• Energy generation facilities
• Interconnector cables
• Laboratories or R&D facilities
• Transportation infrastructure
• Waste or water processing facilities

The rate at which your expenditure can be deducted for tax purposes is determined by the sort of capital allowance it qualifies for. Because your capital expenditure may fall into more than one category, it's critical to understand all of them to get the most out of the various capital allowance schemes. Determining which capital allowance is most beneficial to your business is crucial, and our tax specialists and R&D experts, under one roof, will allow you to see the full picture.  

The significant benefit of making an RDA claim kicks in when considering buildings or long-life assets. Compared to the 3% allowance for building and 6% for long-life assets, making an RDA claim for this expenditure will provide a substantial tax benefit. For example, if a company spends £1,000,000 on a long-life asset, making an RDA claim will provide an additional £117,500 of tax savings even with the new super-deduction.

Can our business claim RDAs?

Although there has been significant growth in the number of companies making R&D tax credit claims for revenue expenditure, claims for RDAs on capital investments have lagged.

RDAs and R&D tax credits both use the same R&D definition. This means that if your company is innovating by developing new goods, processes, materials, or services (or improving current ones) and investing in capital assets, you may be eligible for RDAs. RDA claims must be accompanied by a legitimate R&D tax relief claim report that outlines the qualifying activities and any RDA qualifying costs, which is why you may need to get an R&D tax specialist involved.

Costs linked with the building's structure and fabric do not qualify for the full expensing, super-deduction or AIA claims, which is why they can only be claimed as RDA. If you've invested money in the structure of the facility where you’re undertaking qualifying R&D, or you’re involved in developing an innovative long-life asset, get in touch with one of our experts.

An RDA must be claimed within two years, just like any other capital allowance claim. If the company disposes of the equipment for R&D purposes, whether during or after the period, the tax exemption is not clawed back.

Can you claim R&D tax credits and capital allowances?

RDA’s work sits alongside your R&D tax credits claim. Unlike the R&D tax credits that is limited to revenue expenditure only, making an RDA claim will reward an innovative business for incurring capital expenditure as part of their R&D efforts. Therefore, your R&D tax credits covers the operational costs such as staff costs, subcontractors, and consumables, whereas your RDA claim will cover the capital expenditure on assets. Therefore, you cannot claim both RDAs and tax credits on the same expenditure. However, by claiming both incentives you can lower your taxable profits by writing off your fixed assets in the year they were purchased. For an SME business, this can increase the taxable loss that can surrender for a cash tax credit.

How we can help

Because RDAs and R&D tax credits are based on the same definition of R&D, Buzzacott can assist any creative business claiming capital allowances with expert assistance to guarantee you‘re getting the most out of them. RDAs can't always boost the value of your capital allowances claim, so getting guidance from a firm that can handle all capital allowances is essential. However, do note that if you miss the claim deadline you will lose your chance to benefit from this scheme.

Get in touch

If you would like to speak to one of our R&D experts to find out more about how we can help, please get in touch via the form below or call +44 (0)20 7710 3330.