R&D Allowances

Your business may qualify for R&D Allowances (RDAs) if it incurs capital expenditure on carrying out qualifying research and development related to its trade. Unlike R&D tax relief, which primarily concerns qualifying revenue expenditure, RDAs are designed for capital investment associated with R&D. They can provide a 100% tax deduction for qualifying capital expenditure in the period in which it is incurred. Eligibility depends both on whether the underlying activity constitutes qualifying R&D and whether the capital expenditure was incurred for the purposes of that R&D.

Both provide tax relief for capital expenditure, but they apply in different circumstances. Standard capital allowances generally provide relief for qualifying plant, machinery and certain other business assets, using mechanisms such as the Annual Investment Allowance, Full Expensing or writing-down allowances. RDAs specifically apply to capital expenditure incurred on carrying out qualifying R&D and can provide 100% relief in the year of expenditure. One particularly important difference is that RDAs can potentially apply to expenditure on buildings or structures used for R&D, which would not normally qualify for plant and machinery allowances.

Yes, potentially. R&D Allowances can apply to certain capital expenditure incurred on carrying out qualifying R&D or on providing facilities for carrying out that R&D. This can include qualifying expenditure associated with buildings or structures used as laboratories, research facilities, pilot plants, test facilities or similar R&D premises.

The relief does not mean that every building, construction cost or item of land used by an innovative business automatically qualifies. The expenditure must have the required connection with qualifying R&D related to the company’s trade, and exclusions and apportionment rules may apply where a facility has both R&D and non-R&D uses.

Businesses planning substantial R&D facilities should consider R&D Allowances before construction or acquisition decisions are finalised, alongside other capital allowances and potential grant support.

R&D Allowances can potentially apply to capital expenditure incurred on carrying out qualifying research and development or on providing facilities for that R&D. Depending on the circumstances, this may include qualifying expenditure on plant, machinery, equipment and certain buildings or structures.

The expenditure must be connected with R&D related to the company’s trade, or to a trade that it intends to carry on. Simply describing an asset or facility as being used for innovation does not make the expenditure eligible.

Where an asset or facility has both R&D and commercial uses, the qualifying amount may need to be apportioned. The underlying activity must also satisfy the tax definition of R&D, so the position should be assessed by reference to the actual scientific or technological work rather than the asset’s commercial description.

Yes, potentially. The two reliefs address different types of expenditure and can therefore complement one another.

R&D tax relief generally supports qualifying revenue expenditure associated with R&D, while R&D Allowances provide capital-allowance relief for qualifying capital expenditure incurred on carrying out R&D or providing facilities for it. A business investing in a major R&D project could therefore potentially claim R&D tax relief on eligible staffing, consumables and other qualifying revenue costs, while considering R&D Allowances for qualifying capital investment.

Care is required to classify expenditure correctly and avoid claiming two forms of relief on the same cost. Capital expenditure is generally excluded from the revenue-cost calculation for R&D tax relief, although it may qualify for capital allowances instead.

RDAs should be considered whenever significant capital expenditure is being incurred specifically for qualifying R&D. They can be particularly valuable where expenditure would not qualify for immediate 100% relief under other capital allowance regimes, especially investment in buildings and structures used for R&D. The best treatment depends on the asset, its use, the availability of other allowances and the company's wider tax position. Ideally, RDAs should be considered alongside Capital Allowances, R&D tax relief and potentially grant funding before a major R&D facility or capital investment project begins, so that the available reliefs can be assessed together.