Research and development allowances (RDAs)

There has been significant growth in the number of companies making R&D tax credit claims for revenue expenditure, but claims for RDAs on capital investments are significantly lower.

The meaning of “research and development” for RDAs is similar to the definition used for the R&D tax credit regime. If your business invests in R&D, failing to investigate capital expenditure in this process could result in you missing significant tax and timing benefits.

RDAs can be claimed instead of capital allowances for expenditure on equipment, machinery and facilities used to carry out qualifying R&D. Unlike standard capital allowances, RDAs provide 100% tax relief regardless of the nature of the asset, excluding land. There is also no limit in value, unlike the annual investment allowance, so RDAs can substantially accelerate tax relief. This can allow your business to retain more cash to reinvest for future growth.

The following example illustrates this for a business investing £500,000 in a new facility, of which 50% is used for R&D activities:

Capital allowances with no RDAs

With RDAs

This assumes no annual investment allowances or first year allowances and is based on current writing down and corporation tax rates.

A claim for RDA relief must be included in the tax computation for the period in which the expenditure is incurred. This sets a two-year time limit to claim RDAs.

Every RDA claim and its interaction with other capital allowances and reliefs will be specific to the circumstances of your business. Our dedicated capital allowances and R&D teams work together to consider your business’s capital and operational R&D expenditure as part of an overall approach.

This helps us prepare robust R&D analyses that optimise the available R&D tax reliefs and RDA claims and ensure that RDAs are not excluded from project planning or missed entirely if outside the relevant time limit.