What are Research and Development Allowances (RDAs)?
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Research and development have been increasing by a huge number in recent years and its contribution is also very big, that’s why there are various research and development (R&D) incentives available in the UK for almost all domains and sizes. The government has initiated various schemes since the year 2000 to support companies investing in innovation by developing new products, services, materials, processes, or improving existing services and products.
Research and Development (R&D) Allowances are R&D incentives in the form of R&D tax relief for capital expenditure incurred for R&D projects. R&D capital allowances offer a 100% deduction for the companies investing in capital assets for R&D purposes. It is a valuable deduction on your Corporation Tax bill, without any limit of the amount you can claim, unlike other investment allowances.
Who Qualifies for Research and Development Allowance Claim?
If you fulfill the following prerequisites then you are eligible to make a research and development allowance claim:
- Undertaking a qualifying R&D activity/activities
- Incurred qualifying capital expenditure
- The cost must be incurred in the relevant period
However, there is no compulsion for project-specific costs.
Which expenditure qualifies for Research and Development Allowances Claim?
Most capital expenditures related to R&D are treated as qualifying expenditures for the claim. It is important to note that R&D allowance claims can be made for new assets only not the ones transferred from manufacturing to R&D.
Following are some capital expenditures that qualify for Research and Development Allowance claim:
- R&D Facilities:
When capital expenditure is incurred on building/property for Research and development activities then it qualifies for R&D allowances claim. Capital assets such as R&D facilities, building, or refurbishing a development R&D facility might qualify for research and development allowance.
A claim can also be made for the part of a building designated for R&D purposes.
- R&D Centre:
If an R&D centre forms a part of a larger facility and accounts for more than 75% of total facility cost then the entire facility can be considered as a qualifying expenditure of Research and Development Allowances claim.
- Equipment & Machinery:
All the expenditure made on equipment and machinery used in research and development qualifies for the claim.
- Business vehicles
Company cars used for R&D staff and purposes also come under qualifying assets.
- Computer software
Software bought to carry our R&D projects
- Laboratory equipment
Laboratory equipment was bought to carry out research and development.
- Plant & Machinery:
Plant and Machinery used for testing in research and development processes.
Note: Land or intellectual property such as trademarks and licenses do not qualify for the claim.
What is Time Limit for Research and Development Allowance Claim?
For any capital allowance claim, research and development relief must be included in the tax computations for the period in which the expenditure was incurred, which sets the limit of 2 years for the claim.
How can you claim Research and Development Allowances?
To claim for research and development allowances you need properly maintained accounting records. For making R&D allowances claim you need to fill CT600 form along with other tax computations and submit it to HMRC. Your tax computations and CT600 should correctly reflect your research and development allowances.
What are the Advantages of Claiming Research and Development Allowances?
- Research and Development Allowances are very valuable tax reductions for companies.
- It is available on a broader range of expenditure than any other allowance such as AIA.
- It covers almost all capital expenditure on facilities used in the R&D processes.
- No maximum limit for the claim
- It allows 100% tax relief for capital expenditure on R&D facilities
Can you claim Research and Development Allowances & R&D Tax Credits Together?
R&D tax credits and R&D allowances are closely linked, and you can submit both these claims together as they are very valuable financial aid for businesses that can help you reinvest and grow. Many companies prefer to claim R&D tax credits for their R&D expenditure.
What Do We Do?
We are a team of R&D Tax specialists and our team of experts uses every possible approach to prepare a robust analysis to optimize R&D claims efficiently. We help you claim R&D tax relief and RDA together to maximize your claims via both schemes, so you receive maximum benefit and grow. Our assistance will simplify the process for you and we will handle your RDA or R&D tax credit from start till end.