What’s the difference?
R&D Tax Credits Vs RDAs
Research & Development Tax Credits Vs. Research and Development Allowances?
In short, the main difference between R&D Tax Credits and RDAs is how they provide incentives for R&D activities:
- R&D Tax Credits. These directly reduce a business’s tax liability by a percentage of its eligible R&D expenses i.e. revenue costs. The benefit is applied when the business files its tax return.
- RDAs. These allow businesses to deduct a certain percentage of their qualifying R&D expenditures i.e. capitalised costs, from their taxable income before calculating the tax owed. The benefit is realised during the calculation of taxable income.
What percentage can be claimed for RDAs?
RDAs offer a 100% tax deduction on facilities used for R&D purposes
Tax advantages of claiming RDAs include there being no upper claim limit to the amount claimed. The added value of claiming on costs that would usually only attract a lower rate of allowance, such as Structures and Buildings Allowance, which is claimable at a rate of only 3% per annum.
When are RDAs Relevant?
RDAs are relevant for businesses engaged in qualifying R&D activities
Particularly when they incur substantial costs related to constructing facilities or acquiring equipment. These allowances offer tax relief by allowing businesses to deduct a percentage of their eligible R&D expenditures from their taxable income. RDAs become important when companies aim to innovate, face technical uncertainties, and seek financial incentives to support their R&D efforts. It’s crucial to comply with specific regulations outlined by HMRC to qualify for RDAs.
What expenditure typically qualifies?
Construction, expansion and renovation
Eligible expenditure includes the construction, expansion, and renovation. Or adaptation of existing facilities to meet the technical requirements that directly support R&D endeavours. For instance, if a laboratory has been purposely built or purchased to house. Plus, to provide facilities for R&D activities, the cost of the laboratory building (excluding the land) would qualify for RDAs. The acquisition of specialised equipment is crucial for R&D projects, costs associated with installation, and integration. Plus the customisation of such equipment, as well as investments in energy-efficient infrastructure, may also qualify.
An Example of RDAs
An R&D business completed an extension to house and increase its R&D capabilities. The extension was completed within one accounting period and cost £5,000,000.
See below 2 scenarios:
Maximising the Rewards
Seek expert advice
Businesses engaged in R&D activities stand to benefit significantly from these incentives, which can provide valuable tax relief for investments in innovation. When taking advantage of these it is strongly advised to seek the support of expert teams and tax professionals. These professionals can provide tailored guidance, assist in identifying qualifying expenditures, and ensure compliance with the latest legislation. By leveraging the expertise of these professionals, businesses can not only maximise the potential benefits of RDAs but also streamline their R&D tax strategy.
Get in touch with our expert team for advice...
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