R&D capital allowances
Produced in partnership with Anne Fairpo of Temple Tax Chambers
R&D capital allowances

The following Tax guidance note Produced in partnership with Anne Fairpo of Temple Tax Chambers provides comprehensive and up to date legal information covering:

  • R&D capital allowances
  • What is R&D?
  • Qualifying capital expenditure on R&D
  • Expenditure on R&D—types of asset
  • Details of R&D allowances
  • Disposal events
  • Quick disposals
  • Balancing charges
  • ExampleDisposal value
  • Interaction with VAT—capital goods scheme
  • more

Research and development (R&D) capital allowances are available to all taxpayers carrying on a trade, not just companies. Therefore, an individual, or partnership of individuals, which cannot claim R&D tax relief, can still claim R&D capital allowances.Capital Allowances Act 2001, s 437

Where an item of expenditure could qualify for other capital allowances (such as plant and machinery allowances), the trader needs to choose which allowance to take. Only one form of capital allowances may be claimed on an item of capital expenditure.CAA 2001, s 7

Following the Finance Act 2014, R&D allowances are no longer affected by any restrictions imposed on a company under CTA 2010, Pt 14A following certain changes of company ownership (for a description of these rules, see Practice Note: Restrictions on the use of losses following company takeover—the deduction transfer TAAR).Corporation Tax Act 2010, s 730B(1)(a)

What is R&D?

R&D that qualifies for R&D tax relief (for which, see Practice Note: What is R&D?) will also be R&D for capital allowances purposes.CAA 2001, ss 437(2)-(3)CA60200

Oil and gas exploration appraisal also falls within the capital allowances definition of R&D.

Qualifying capital expenditure on R&D

Expenditure qualifies for R&D capital allowances if it is capital expenditure incurred by a taxpayer on R&D directly undertaken by the taxpayer or on the taxpayer’s behalf, provided:CAA 2001, s 439(1)

  1. the taxpayer is carrying on a trade when the expenditure is incurred and the R&D relates to the trade, or

  2. after incurring the expenditure, the taxpayer sets up and commences a trade connected with the R&D

R&D ‘related to a trade’ includes R&D:CAA 2001, s 439(5)CA60400