What are research and development allowances (RDAs)?

Why this is a separate relief at all

R&D tax relief only reaches expenditure that is deductible in computing your trading profit. HMRC’s guidance is blunt about the consequence: “To be eligible as qualifying R&D expenditure, expenditure must be allowable as a deduction in calculating the profits of the trade. Capital expenditure is therefore excluded.” The same page then points straight here — “It may however qualify for R&D allowances.”

So the two reliefs split the same project along the capital/revenue line. Your researchers’ salaries, consumables and software go into the R&D relief claim; the building they work in, and the capital equipment they work with, go into the RDA claim. Nothing qualifies for both, and nothing worth claiming should fall between them.

One thing to be careful about before you assume a cost is capital: whether something is capitalised in your accounts does not settle whether it is capital for tax. Expenditure written onto the balance sheet can still be revenue in nature and therefore still belong in your R&D tax relief claim. Get that boundary right before splitting the costs, because putting a cost in the wrong claim is worse than putting it in neither.

What counts as R&D for this purpose

The activity test is the one you already know. HMRC’s capital allowances guidance directs that activities are treated as research and development “if normal accounting practice treats them as research and development and they satisfy the conditions set out in Guidelines” produced by the relevant Secretary of State — the same Guidelines on the meaning of R&D that govern whether your work qualifies for R&D tax relief.

That is genuinely useful. If you have established that a project is qualifying R&D for your relief claim, you have done the hard part of the activity analysis for RDAs on the same project. What remains is a different question — whether the expenditure is capital, and whether it relates to your trade.

Expenditure on R&D includes both the cost of carrying out the research and the cost of providing facilities for carrying it out. That second limb is what brings buildings into scope.

Buildings qualify. Land does not.

The exclusion is narrow and specific: no allowance is due for expenditure on acquiring land, or rights in or over land. A building standing on that land is a different matter, and HMRC’s guidance is explicit that where you buy a property you “make a just apportionment of the expenditure to exclude the part relating to the cost of the land on which the building etc. stands.”

So buying a freehold laboratory gives you an RDA on the building element, and nothing on the land element, and the apportionment between the two is a real piece of work rather than a formality. Construction, extension and refurbishment of a facility used for R&D sit comfortably inside the relief.

Why this is worth more than it used to be

RDAs used to be argued for mainly against plant and machinery writing-down allowances at 18% on a reducing balance. That comparison has weakened: for expenditure incurred on or after 1 April 2023, companies can claim full expensing — a 100% first-year allowance on main-rate plant and machinery, uncapped, made permanent in the Autumn Finance Bill 2023 — and the annual investment allowance covers £1 million of qualifying spend a year for everyone else. On equipment, an RDA and full expensing both give you 100% now, so the RDA is no longer the outlier.

Buildings are where the gap is, and it is very wide. Full expensing does not reach structures and buildings. The structures and buildings allowance gives 3% a year, on a straight line, over 33⅓ years, for corporation tax purposes from 1 April 2020. An RDA on the same building gives you all of it in year one — the worked example below puts numbers on that.

Who can claim, and how

RDAs are for traders. HMRC’s position is direct: “RDA is only available to traders. A person carrying on a profession or vocation is not entitled to them.” Unlike R&D tax relief, which is a corporation tax relief for companies, RDAs are available to unincorporated businesses carrying on a trade.

You claim an RDA on your tax return as a capital allowance, in the ordinary way, within the normal window for amending that return — see how far back you can claim. It is worth being clear about what does not apply: claim notification and the additional information form are requirements of the R&D tax relief regime, not of the capital allowances code, so an RDA claim needs neither. A company that has missed its R&D notification deadline has not thereby lost its RDAs.

You can claim less than the full 100% if you want to. Be careful: if you claim a reduced amount, you cannot claim the balance later. Unlike a writing-down allowance, no pool carries the rest forward.

What happens when you sell

A disposal event — ceasing to own the asset, or its demolition or destruction — brings a disposal value into account and can produce a balancing charge, which is taxable income. The charge is the smaller of the amount by which the disposal value exceeds any unclaimed RDA, and the RDA actually made: you cannot be charged more than you were given.

Two points that are easy to get the wrong way round. Simply stopping using the asset for R&D is not a disposal event — there is no clawback for a change of use, only for a change of ownership. And where a disposal already produces a balancing charge for plant and machinery purposes, no separate RDA disposal value is brought into account, so the same disposal is not charged twice.