Date Published:
February 7, 2023
R&D capital allowances (known as RDAs) are a valuable form of tax relief for companies engaged in research and development.
R&D capital allowances (known as RDAs) are a valuable form of tax relief for companies engaged in research and development. They are the capital version of the tax credits that can be claimed on R&D expenditure and HMRC’s definition of R&D is the same in both cases. There is no upper limit for an RDA claim.
The allowances offer a 100% corporation tax deduction on qualifying expenditure on assets or facilities used in R&D projects. For assets the claim must be made in the first year that the asset is purchased.
Qualifying expenditure includes costs relating to:
HMRC defines R&D projects as those that seek ‘to achieve an advance in science or technology’. It will consider R&D activities to be those that ‘directly contribute to achieving this advance in science or technology through the resolution of scientific or technological uncertainty’.
An R&D activity can be interpreted fairly widely; it doesn’t have to lead to some sort of scientific or technological breakthrough. Increasing knowledge of a business area and developing or improving products, processes and services could all fall within the definition. Refurbishing a building where R&D activity is undertaken could also qualify.
The property element of RDAs is important because allowances and reliefs are not widely available for expenditure on property.
As well as RDAs companies can claim plant and machinery allowances (PMAs) as part of the annual investment allowance (AIA) up to a limit of £200,000 a year.
The AIA offers a 100% capital allowance on qualifying expenditure on plant and machinery (but not property), and other items used in the business. Alterations to a building to install plant and machinery are claimable – but not repairs. The maximum claim value is £1 million.
Writing down allowances (WDAs) also cover plant and machinery. WDAs give a deduction of 18% or 6% depending on the asset bought and can be applied to cars (unlike AIAs).
The super-deduction is available until March 2023. Under the scheme companies can claim a 130% capital allowance on spending on qualifying plant and machinery. They can also claim a 50% allowance on qualifying special rate assets.
Unlike the tax credits available for R&D expenditure, RDAs treat small and medium-sized companies (SMEs) and large companies the same. Large companies are therefore more likely to benefit from the RDA scheme as many of them will reach the AIA limit.
Claims for RDAs must be made within two years of the accounting period in which the R&D activities took place.
Thus if your accounting period is the same as the tax year, from 6 April 2023 you would not be able to make an RDA claim for the accounting period 6 April 2021 to 5 April 2022, only for the 2023-24 and previous tax years. Furthermore, claims need to be supported by accounting records that include the R&D work.
Capital expenditure may be claimable under more than one category, for example, a piece of machinery could be claimable under an AIA, a PMA or an RDA. Therefore companies need expert advice individually tailored to their circumstances to ensure they are receiving the maximum benefit from the various allowances.
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To find out if your project or innovation qualifies under the R&D SME scheme and how it can help your business, get in touch for a Free, No Obligation Evaluation. Start claiming R&D Tax Credits today.
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