There has been a big drive from the government to promote the R&D tax relief scheme for SMEs and Large Companies. However, these schemes focus solely on revenue expenditure.
Frequently we get asked, we bought a piece of capex that we used for R&D, can we include this capex item in the claim? The answer for the R&D tax relief scheme is no (due to the R&D tax relief scheme excluding capex items).
However, within the capital allowances regime, there is Research and Development Allowances (RDA). This scheme allows companies to claim a 100% deduction in their tax computation for capital equipment that facilitates the R&D process. Qualifying capex items can cover a wide range of purchases such as facilities and/or assets used by employees for R&D.
One benefit of RDA is that a company can claim a 100% deduction (or a reasonable proportion if the facility/asset is only partly used for R&D) in the year that the expenditure is incurred versus an annual 18% Writing Down Allowance (WDA) for non-RDA assets.
An additional benefit is that there is no cap on RDA. Currently, companies can claim the Annual Investment Allowance (AIA) on qualifying assets. However, there is a cap on this expenditure. Therefore, once this AIA cap is fully utilised, assets which qualify for the RDA scheme could add an additional layer of tax benefit to companies.
Therefore, companies should not hesitate to purchase R&D related capital items as the RDA scheme will reward companies for those purchases.
Rob, R&D Tax Manager, Leyton UK