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Research and development allowances (RDAs) explained
RDAs provide businesses with 100% tax deductions for capital expenditure on equipment and facilities used in full or in part in carrying out qualifying research and development activities.
Although there has been significant growth in the number of companies making R&D tax credit claims for revenue expenditure, research often shows that claims for RDAs on capital investments are significantly lower.
The meaning of ‘research and development’ for the purpose of RDAs is similar to the definition used for the R&D tax credit regime. This means that if your business is investing in R&D, failing to investigate how capital expenditure is used in this process could result in significant tax and timing benefits being missed.
How RDAs interact with other capital allowances
RDAs may be claimed instead of capital allowances for expenditure on equipment, machinery and facilities used in carrying 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.
Consider a business investing £500,000 in a new facility, of which 50% is used for R&D activities:
Capital allowances with no RDAs
| Expenditure | £ | 18% Main Rate (MR) | 6% Special Rate (SR) | 3% Structures & Buildings Allowances (SBA) | Tax deduction |
| Structural works | 300,00 | 300,000 | |||
| Integral plant | 100,000 | 100,000 | |||
| Equipment | 100,000 | 100,000 | |||
| 500,000 | 18,000 | 6,000 | 9,000 | 33,000 | |
| Tax saving @19% | 6,270 |
| Expenditure | £ | 18% Main Rate (MR) | 6% Special Rate (SR) | 3% Structures & Buildings Allowances (SBA) | 100% RDAs | Tax deduction |
| Structural works | 300,000 | 150,000 | 150,000 | |||
| Integral plant | 100,000 | 50,000 | 50,000 | |||
| Equipment | 100,000 | 50,000 | 50,000 | |||
| 500,000 | 9,000 | 3,000 | 4,500 | 250,000 | 266,500 | |
| Tax saving @19% | 50,635 |
* Note: Assumes no annual investment allowances or first year allowances and based on current writing down and corporation tax rates
Time limit for making a claim
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.
Our approach
Every RDA claim, and how it interacts 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 approach enables us to prepare robust R&D analyses that optimise the available R&D tax reliefs and RDA claims efficiently and ensure that RDAs are not excluded from project planning, or missed completely if outside of the relevant time limit.