Businesses investing in lab equipment, machinery, or even a new building to support your product development should already know that these costs don’t qualify for R&D tax credits. R&D tax credits cover your day-to-day R&D spending, like salaries and consumables, but they don't touch capital expenditure. That's where capital allowances come in.
Companies can benefit from Research and Development Allowances (RDAs). RDAs let you deduct 100% of qualifying R&D capital costs from your taxable profits in the year you spend the money. Unlike most other capital allowances, there's no cap on how much you can claim.
Here's how they work, what qualifies, and how to claim them alongside your existing R&D tax credit claim.
What are R&D Capital Allowances?
RDAs are a type of capital allowance specifically for capital expenditure connected to research and development. Where R&D tax credits give you relief on revenue costs, RDAs give you relief on the assets you buy or build to carry out that R&D.
The rate is 100%. That means the full cost of a qualifying asset can be deducted from your profits in the same accounting period you incurred the expense, rather than being written down gradually over several years.
Who can claim RDAs?
RDAs are only available to traders (companies and individuals carrying on a trade). If you carry on a profession or vocation rather than a trade, you won't qualify. This largely means that you must carry out commercial operations to provide goods or services to customers in exchange for money.
You must also be carrying out R&D by HMRC’s definition and this R&D must be related to the company’s trade. Essentially, R&D is seeking to advance the state of the art and having to overcome scientific or technological uncertainty to do this.
You must be ultimately responsible for the R&D for any RDAs to qualify; research undertaken by a third party that benefits you is not reason enough to claim.
What can you claim RDAs on?
The expenditure has to be capital in nature and related to a trade you carry on, or one you're about to start. In practice, this usually covers:
- Construction or extension of R&D facilities and property (buying land itself doesn't qualify)
- Laboratory and research equipment
- Plant and machinery used for R&D
- Internal IT systems built to support R&D work
- Company cars used for R&D purposes
If your R&D facility sits within a larger, mixed-use building, you must apportion the amount that is used for R&D versus non-R&D. For example, if 60% of a building is used for R&D but 40% is general commercial use (e.g., for administration, sales or other commercial activities), then only 60% of the building can be claimed.
The method for determining how much of a building is R&D is up to you, but it must be “just and reasonable”, and you may need to defend it to HMRC.
You can only claim for any expenditure incurred in that period (unless it was incurred before the trade began).
What expenditure is excluded from RDAs?
There are some capital expenditure costs that will never qualify, even if they’re necessary for your R&D.
As mentioned above, the costs of land do not qualify, even if they are part of the sale of a building. Any purchase of building and land must be reviewed to exclude the land portion of the cost.
Expenditure on rights (either acquiring them or rights arising from R&D) will not qualify for relief. This includes acquiring the rights (e.g., for a patented invention needed in the course of R&D) and for rights that arose from R&D (e.g., IP activities once the R&D has proved the project has merit).
Likewise, expenditure on homes or dwellings as part of a property purchase will not qualify. If your company buys a building for R&D which includes apartments or other homes, that part of the building cost must be excluded from your claim.
The exception to this rule is if the dwelling costs less than a quarter of the total building cost. For example, a building used for R&D with a flat above costs £1 million. It can be included in an RDA claim in its entirety if the flat is worth less than £250,000. If the flat’s worth more than that, it must be excluded.
How is this different from claiming R&D tax credits?
R&D tax credits and RDAs sit side by side, but they apply to different types of spending.
Company A, a materials science startup with 18 staff, spends £180,000 a year on R&D. Of that, £140,000 covers staff time, consumables, and subcontracted testing, while £40,000 goes towards a new piece of testing equipment for its lab. The £140,000 is claimed through R&D tax credits. The £40,000 equipment cost is claimed separately through RDAs.
You can't claim both reliefs on the same pound of expenditure, but you can claim both in the same accounting period on different costs. That means running the two claims together rather than choosing one over the other.
How much could you claim?
Because the rate is 100% and there's no upper limit, the cash benefit scales directly with what you spend.
Company B builds a dedicated testing facility for £250,000 to support its product development. Under RDAs, the full £250,000 can be deducted from its taxable profits in the year the cost is incurred. At the current 25% Corporation Tax rate, that's £62,500 taken directly off the company's tax bill, rather than trickling through over years of depreciation.
This is a meaningful difference from allowances like the Annual Investment Allowance, which is capped at £1 million a year and doesn't extend to most property costs. Other capital allowances have specific cost categories or a limited rate.
For businesses investing heavily in facilities, RDAs are often the only route to full, immediate relief on that spending.
What happens if you later get rid of the asset?
If you later sell, demolish, or the asset is destroyed, you may face a balancing charge, which claws back some of the relief you've already had.
However, simply changing how you use the asset, for example moving it from an R&D project to general production, doesn't trigger a clawback. Once the relief has been claimed on that basis, it stays claimed.
How and when do you claim RDAs?
You claim RDAs through your Company Tax Return (CT600), in the same way you'd report other capital allowances. That means your deadline is 12 months after the end of your accounting period (your CT600 filing deadline). However, you can amend your CT600 within the following 12 months, giving you effectively 24 months to claim RDAs.
Alongside the claim, it's good practice to include a short project brief explaining what the expenditure was for and how it relates to your R&D activity and trade. This is a similar kind of documentation HMRC would expect to support an R&D tax credit claim. If you're already gathering evidence for an R&D tax credit claim, most of that groundwork, invoices, project descriptions, and technical detail, doubles up for your RDA claim too.
Key takeaways
- RDAs give 100% first-year relief on qualifying R&D capital expenditure, covering facilities, equipment, machinery, IT systems, and R&D-related vehicles.
- There's no cap on the amount you can claim, unlike the Annual Investment Allowance.
- RDAs and R&D tax credits cover different types of spending and can be claimed together in the same period, just not on the same cost.
- Land itself never qualifies, so purchases involving both land and buildings need a fair apportionment.
- You claim with your Company Tax Return, giving you 12 months to file and another 12 months to amend your return.
If you're investing in equipment, facilities, or R&D infrastructure and want to know what you could claim back, get in touch and our team will walk you through what qualifies for your business.
