R&D capital allowances
R&D capital allowances (formerly known as scientific research allowances) are available for qualifying capital expenditure incurred for research and development (defined in the same way as for the R&D reliefs).
Expenditure qualifies for R&D capital allowances if it is capital expenditure incurred on R&D directly undertaken by the relevant business or work carried out on behalf of that business, provided either:
- the relevant business incurs the expenditure on R&D connected with an existing trade; or
- a trade to which the R&D is connected is commenced after the expenditure has been incurred.
There are very few restrictions on the type of assets which may qualify for R&D capital allowances. Moreover, whilst deductions are available for buildings for R&D there is no deduction available for the acquisition of land. Similarly, if an asset has historically been used for other activities and begins to be used for R&D purposes, it will not qualify for R&D capital allowances.
R&D capital allowances provide a deduction of 100% in the period in which the expenditure is incurred, unless the taxpayer elects to deduct a smaller percentage. Where a smaller deduction is taken, the balance cannot be deducted later. If the expenditure was incurred before the trade began, the R&D capital allowance would be available in the period in which trade commences.
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Nikol Davies
Nikol is a partner in the Tax group based in our London office.
"There are very few restrictions on the type of assets which may qualify for R&D capital allowances."