R&D Capital Allowances and R&D tax relief—what’s the difference?
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Here at WhisperClaims, our specialist subject is R&D tax relief in all of its complicated and subjective glory! Our software is designed specifically to deal with this niche area of corporation tax, and our in-house experts have spent many years preparing claims themselves for R&D tax relief, as well as supporting our clients as they navigate the scheme. Given all of this, it’s understandable that we often get questions about R&D Capital Allowances (RDA). The types of questions we get about RDA have led us to realise that there’s a lot of confusion out there about the differences between R&D tax relief and RDA, and what costs can be claimed for under each scheme.
Wait, aren’t R&D tax relief and RDA the same thing?
Nope! They are two distinct but complementary schemes that enable companies carrying out R&D to claim relief on both capital and revenue costs related to the R&D work.
RDA enables companies to claim relief on certain capital costs related to their R&D, through allowing companies to write-off 100% of these costs in the year of purchase. This reduces a company’s profits for corporation tax, which can mean a substantial saving. There’s also no limit to the amount claimed through RDA, unlike the Annual Investment Allowance.
R&D tax relief, on the other hand, allows companies to claim tax relief on the revenue costs of their R&D by allowing companies to enhance their R&D spend and reduce their profits for tax purposes.
Ok, so what’s the definition of R&D for RDA claims?
Happily, the definition of R&D for RDA is exactly the same as for R&D tax relief. In fact, the RDA manual points you to the R&D tax relief manual as the definition of R&D—both use CIRD81300.
So, can I claim for both RDA and R&D tax relief at the same time?
Yes! Given that the definition of R&D is the same for both, there’s a good chance that a company would be able to claim both in the same financial period. However, by definition, a completely separate set of costs can be claimed under each. Only revenue costs can be claimed under R&D tax relief, and only capital costs can be claimed under RDA. If you find yourself claiming the same costs for both, something has gone wrong!
What if my client has capitalised research and development costs as intangible assets?
How a company can claim R&D tax relief for intangible assets is a whole blog in itself, but, in short, if a company has opted to capitalise revenue costs of R&D as intangible assets, it should be able to claim the costs through the R&D tax relief scheme. These costs cannot be claimed through RDA because they are not capital in nature.
Can I use WhisperClaims to prepare a claim for R&D allowances?
No, WhisperClaims can only be used to prepare R&D tax relief claims. However, the process of identifying costs and claiming RDA is much simpler than that for R&D tax relief (the RDA manual has nine pages, whereas the R&D tax relief manual runs to over 500!). These allowances can be claimed in the same way as any other capital allowances, and HMRC provides clear guidance on how RDA works. Having said this, our in-house experts are happy to help you identify which costs would be eligible for R&D tax relief, and which might be more appropriate for RDA.