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What are R&D capital allowances?

Author: Gareth Smyth

What are capital allowances?

You can claim capital allowances when you buy assets that you keep to use in your business, for example:

  • equipment
  • machinery
  • business vehicles (vans and lorries)

These are known as plant and machinery and you can deduct some or all of the value of these items from your profits before you pay tax.

If you have purchased equipment or machinery (capital assets) that are for the sole purpose of research and development you can claim R&D capital allowances (RDAs) which enable you to deduct 100% of the value of the item from your profits before you pay tax. RDAs are a form of tax relief and if you are investing in capital that is being used to innovate your business and you incur capital expenditure when carrying out qualifying R&D projects, you can qualify for RDAs.

Qualifying R&D projects typically include:

  • Overcoming technical challenges
  • Creating and testing prototypes
  • Streamlining processes
  • Trialling new or substituting materials
  • Developing bespoke software
  • Trial and error
  • Industry firsts

Depending on the nature of your business, there are other capital allowances you can claim which dictate your tax deduction. It is important to know the differences between each type of tax relief before you make a claim as your expenditure might fall into more than one category which is why we recommend talking to specialists like ourselves first. Failing to consider R&D capital allowances can result in you missing out on financial savings and rewards so do get in touch with us if you are thinking about claiming.