R&D Capital Allowances
Introduced to the UK in 2001 – RDAs allow an individual, partnership or limited company to write down almost all their capitalised R&D expenditure, and thereby reduces tax paid, retaining cash within the business. RDAs offer a generous 100% first year tax relief and can be claimed on most capitalised expenditure that has been directly incurred when carrying out or provisioning facilities to undertake R&D.
- You can claim RDAs retrospectively, for up to 2 years after the end of an accounting period
- You can claim for facilities that relate to R&D and for other purposes e.g. day-to-day manufacturing or support
- No limit on the amount that can be claimed and they can be claimed in addition to the Annual Investment Allowance (AIA)
- You can’t cash-in RDAs but can utilise them by either reducing CT due, group relieving it, carrying it forward as a trading loss to off-set against future years’ profits
Generally, the 100% deduction for RDAs apply to the building, extending or refurbishing of R&D facilities – where the expenditure has been capitalised. Examples include:
- Built or refurbished R&D facilities
- Laboratory equipment
- Company cars for R&D staff
- Investment in plant and machinery, or fixtures and fittings to support R&D work
RDAs operate quite separately to claiming R&D Tax Credits (you can claim both), however, the definition of R&D is the same for both. You need to be trading to claim RDAs (and they aren’t available to those carrying out a profession or vocation).
Like R&D Tax Credits around only 20% of companies that could claim RDAs have done so to present.
R&D Tax Credits relate to expenditure incurred through the operational cost of the R&D work, i.e. labour and materials (consumed within the R&D). However, RDA’s can be claimed for any capital expenditure incurred for the purposes of the R&D, excluding the cost of land. Both R&D Tax Credits and RDA’s can be claimed simultaneously, and often, companies who qualify for R&D Tax Credits will qualify for RDA’s.