Research and Development Allowances can be claimed at 100% in year one, which means they provide a very generous cash releasing opportunity when you are purchasing fixed assets. Plus unlike the Annual Investment Allowance (AIA) they apply to buildings as well as other fixed assets you purchase.
RDAs are claimed against ‘capital expenditure’ that supports R&D activities within your business. They should not to be confused with Research and Development (R&D) tax credits which are claimed against ‘revenue expenditure’ relating to qualifying R&D activities.
Unlike R&D tax credits, which are restricted to limited companies, RDAs are not restricted to limited companies, they can be claimed by individuals and partnerships as well, so long as the claimants are ‘traders’ and not carrying on a ‘profession or vocation’.
They are a first year allowance, providing a generous 100% tax offset in the year when the money was spent. This means that, as with R&D tax credits, you have a two year window from the end of your accounting period, in which to make a claim.
The same basic qualification criteria applies for RDAs and R&D tax credits, in that the claimant organisation: ‘must be undertaking a project to seek an advance in science or technology through the resolution of scientific or technological uncertainties. The advance being sought must constitute an advance in the overall knowledge or capability in a field of science or technology, not a company’s own state of knowledge or capability alone’.
So you can claim, for example, for build costs or refurbishments of premises to be used for R&D, or equipment and machinery for R&D activity (laboratories, research facilities, offices, fixtures and fitting, research equipment, information technology and vehicles). But not the cost of land which must be excluded from building costs.
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The benefits of RDAs, above the Annual Investment Allowance (AIA) are that:
- RDAs are not capped – so there is no limit to how much you can claim each year, while the AIA is currently capped at £200,000 (12-month periods starting on or after 1 January 2016).
- RDAs include capital items such as buildings that cannot be included in any other capital allowances.
As there is no cap the more you spend the more cash that can be released, but there is some claw-back if a building is later sold, but no claw-back for a change of use.
RDA are a valuable and often under-claimed relief that it is worth asking a specialist to look into if you think they could apply to you. Contact Linda Eziquiel if you would like more information.