Can I obtain tax relief on capitalised R&D expenditure?
When an innovative company incurs expenditure on capital assets for R&D purposes it is important to understand how R&D tax incentives and capital allowances compare and interact.
R&D Tax Credits / Relief can only be claimed for revenue expenditure on qualifying activities such as costs incurred for employees, subcontractors, agency staff, raw materials, software licenses and utilities. However, if your R&D activities also include capitalised R&D expenditure, you can claim tax relief on that expenditure through RDA’s (Research and Development Allowances), or other Capital Allowance structures.
In cases where revenue expenditure which is capitalised in your accounts is used for R&D purposes it can be eligible for relief as part of your R&D Tax Credit claim, but It will never fall into both R&D tax credits and RDA’s.
How do you decide which Capital Allowance structure is the most beneficial for your capital expenditure on R&D:
One of the main factors to consider is to what extent are the capital assets used in your company’s R&D activities? As depending on your answer, claiming RDA’s could be more beneficial than using other Capital Allowance structures. This is an area where specialist advice is often required to ensure you aren’t missing out on a significant benefit.
Our clients often ask us: ‘can the costs of plant and machinery purchased for use in R&D qualifying projects be recovered through the R&D Tax Credit/Relief scheme?’.
Do SBA’s replace the current Capital Allowances scheme for fixtures in a building?
Summary
Businesses’ can use both R&D Tax Credits and R&D Allowances together to maximise the tax benefits for R&D activities. However, the specific interaction between the two incentives will depend on the company’s circumstances and the type and amount of R&D spending involved. Companies should consult with a specialist tax advisor such as Innovation Tax to understand how the two incentives interact with each other and how to claim them.
HOW CAN WE HELP?
It can be challenging to submit an R&D Tax Credit claim to HMRC’s exacting standards.
At Innovation Tax, our team of experienced sector specialists, technical and quality assurance experts and tax professionals will help you identify the full extent of your qualifying activities and expenditure and work with you to ensure the correct information is included in the claim documentation, giving you peace of mind that your claim is robust, maximised and defendable.