Short answer
They divide the same project between them rather than competing for it. R&D tax relief reaches only expenditure that is deductible in computing your trading profit, so capital expenditure falls outside it and into the capital allowances code instead. The two questions that cause real problems are not about overlap. The first is where the line sits, because capitalising a cost in your accounts does not make it capital for tax — and if you treat your fixed asset register as the dividing line, you will move costs out of an R&D claim that belonged in it. The second is that one item of capital expenditure gets one allowance, so where a cost qualifies for more than one, the choice is yours, and it has consequences.
Applies to
- Schemes
- All periods
- Periods
- 1 April 2001 onwards
Capitalising a cost does not make it capital
This is the point to get right before anything else, because it determines how much goes into your R&D claim. It matters for companies in particular: R&D tax relief is a corporation tax relief, so only companies are on that side of the boundary, while the capital allowances described below are open to unincorporated businesses too.
R&D relief requires expenditure to be allowable as a deduction in computing profits. What it does not require is that the expenditure appears as a deduction in your profit and loss account. Where a company capitalises R&D as an intangible asset, the legislation expressly provides that the expenditure is not prevented from being allowed as a deduction “just because it is brought into account” in determining the asset’s value. HMRC’s own guidance puts the practical effect plainly: such expenditure may be deducted “when it is incurred irrespective of whether it appears as a deduction in the profit and loss account.”
So development costs sitting on your balance sheet as an intangible asset can still be revenue expenditure for tax, and can still go into your R&D tax relief claim. The test is the nature of the expenditure, not its accounting destination.
There is a matching restriction, and it is fair: you cannot have the relief twice. Where the expenditure has been relieved up front, no deduction is available later for writing down the value of the intangible asset it created, and no deduction is available at all if relief has already been given for it in an earlier period.
What is genuinely capital for tax purposes — the building, the test rig, the capital equipment — is a different matter, and that is where capital allowances take over.
One item of expenditure, one allowance
The Capital Allowances Act contains a general rule against double allowances: where an allowance is made under one Part of the Act in respect of capital expenditure, no allowance is to be made under any other Part in respect of that expenditure or “the provision of any asset to which that expenditure related”. Know-how and patent allowances sit outside that restriction; everything else is inside it.
The Act does not set out a priority order or a selection mechanism. In practice, the allowance you claim is the allowance you get, which means the choice is made by whoever prepares the computation — and is worth making deliberately rather than by default.
Which allowance applies to what
The figures below are for corporation tax and expenditure incurred on or after 1 April 2023, except the structures and buildings allowance, whose 3% rate applies for corporation tax from 1 April 2020.
| Capital spend on | What could apply | First-year relief | Worth knowing |
|---|---|---|---|
| A building or structure used for R&D | RDA, or structures and buildings allowance | 100% against 3% | Full expensing cannot reach a building at all |
| New, unused main-rate plant and machinery | RDA, full expensing, or AIA | 100% either way | The choice affects what happens on disposal, not the first year |
| Special rate plant — integral features, long-life assets | RDA, 50% first-year allowance, or AIA | RDA 100% against 50% | Above the £1m AIA limit, the RDA is worth double |
| Second-hand plant, or an unincorporated business | RDA, or AIA | 100% either way | Full expensing is for companies and new assets only |
Two rows there are doing real work. Buildings, because the gap is enormous and permanent: full expensing is a plant and machinery allowance, and expenditure on the provision of plant or machinery “does not include expenditure on the provision of a building”, so a facility gets 3% a year over 33⅓ years unless an RDA reaches it. Special rate plant, because a company spending more than the £1 million annual investment allowance on integral features for an R&D facility is choosing between 100% under an RDA and 50% under the special rate first-year allowance — and that choice is easy to miss when the expenditure is processed as ordinary fit-out.
The annual investment allowance has been £1 million since 1 January 2019. It is shared: two or more companies controlled by the same person get one allowance between them, and they can choose how to split it. An RDA has no equivalent cap and no group sharing.
Why the choice matters even when both give 100%
Where both an RDA and full expensing give you the whole cost in year one, the difference shows up later.
Full expensing produces an immediate balancing charge in the accounting period the asset is disposed of, rather than reducing a pool — and where full expensing covered the entire cost, the charge is the full disposal value. An RDA also produces an immediate charge, but it is capped at the allowance actually made. An asset relieved through the annual investment allowance goes through the plant and machinery pool instead, so the disposal reduces the pool rather than creating its own charge.
None of that changes the total relief over the asset’s life. It changes when the tax falls, which matters if the asset is likely to be sold, transferred within a group, or scrapped.
Worked example
Illustrative figures. A company builds and fits out a facility used for R&D in a 12-month accounting period beginning after 1 April 2023, and pays the 25% main rate. It has already used its £1 million annual investment allowance elsewhere in the group.
| Item | Best available allowance | Relief in year one | If the RDA were overlooked |
|---|---|---|---|
| Building, excluding land | RDA at 100% | £700,000 | £21,000 under the structures and buildings allowance |
| Integral features — heating, lighting, power | RDA at 100% | £180,000 | £90,000 under the 50% special rate first-year allowance |
| New lab equipment | RDA or full expensing, both 100% | £250,000 | £250,000 either way |
| The land the facility stands on | None | £0 | £0 |
On these figures, taking the RDA rather than the default allowance on the first two lines is worth £769,000 of extra deduction in year one — £192,250 of corporation tax at the main rate. The equipment line is unaffected, which is exactly why the choice gets missed: the part of the spend that looks most like R&D is the part where it makes no difference.
Where claims go wrong
- Using the fixed asset register as the capital/revenue boundary. It is the single most common way a claim is understated. Capitalised development costs can be revenue for tax, and stripping everything from the balance sheet removes qualifying expenditure along with the genuinely capital items.
- Letting the capital costs land nowhere. Costs get excluded from the R&D computation as capital and are then never picked up in a capital allowances claim. Excluding a cost from one relief is only half a decision.
- Claiming the first allowance that fits. Where an item qualifies under more than one Part, the first claim made settles it. Special rate expenditure above the annual investment allowance limit is where this costs the most, and it usually happens in the fit-out schedule rather than in anything anyone reviewed as an R&D question.
- Assuming a building will pick up relief somehow. It will, at 3% a year for 33⅓ years, which is not what anyone means when they say the spending is relieved.
- Not evidencing the apportionments. The capital/revenue split and the land/building split on a property both rest on judgement made at the time. Both are exactly what an enquiry asks about, and both are far harder to defend reconstructed — see what records you need to keep.
John Mapother
Founder & Director
Last reviewed 13 September 2026