Blog penned by member company Visiativ
We are often asked by companies if, given recent changes to capital allowances legislation, there is still any value in claiming Capital RDAs (R&D capital allowances). Unfortunately, like most tax-related questions, the answer is rarely straightforward!
Visiativ is here to help you remain informed with the knowledge you need to maximise tax savings and improve cash flow.
We asked our capital allowances partner, John Lovell of Lovell Consulting, to provide his expertise on the subject.
1 – What’s the Difference Between RDAs and Capital Allowances?
In general terms, companies can claim capital allowances on plant (equipment, machinery, vehicles) that are used in the business and with an expected lifespan of at least one year.
RDAs provide a tax deduction on a company’s capital expenditure used for R&D purposes. They provide a 100% tax deduction and have a wider range of qualifying costs than standard capital allowances.
2 – What Were the Recent Changes to Capital Allowances Legislation?
The temporary super-deduction scheme allowing up to 130% tax relief on qualifying capital expenditure has now ended. Instead, the government has introduced ‘full expensing’ from April 2023. Under full expensing, companies can claim a 50% or 100% immediate tax deduction for special rate and main rate purchases, respectively, in the year of purchase on new qualifying expenditure.
3 – RDAs vs Capital Allowances
Structures and Buildings Allowances (SBAs) or RDAs?
- If the expenditure was incurred on structural build, then it may qualify for SBAs. However, claiming SBAs only allows the taxpayer to write off 3% of the expenditure per annum and results in more Capital Gains Tax payable when the taxpayer sells the property.
- But, if part or all of the property is being used for R&D activity, the company can claim RDAs on an appropriate proportion of the expenditure, claiming 100% of relief in the year of expenditure while claiming SBAs on the balance of the expenditure.
Plant and Machinery Allowances (PMAs) or RDAs?
- If you incur expenditure on new and unused assets qualifying as Integral Features / Special Rate Pool, such as installing lifts, lighting, or air conditioning. You may be entitled to claim relief on 50% of the expenditure in the first year, then a writing-down allowance (WDA) of 6% in subsequent years.
- However, if the assets are used as part of an R&D project, RDAs may be available on all or a proportion of the investment, providing a faster tax relief of 100% first-year allowance (FYA).
Full Expensing and General Pool Assets or RDAs?
- Expenditure qualifying for new and unused general pool assets, such as carpets and flooring, computer equipment, and sanitary fittings, may be offset at 100% in the first year.
- However, second-hand general pool assets attract a much lower writing-down allowance of 18%, meaning companies can only claim relief against 18% of the investment in the year one and then 18% of the residual value year-on-year thereafter.
- A company investing in second-hand general pool assets would, therefore, be better to claim RDAs, assuming these assets qualify as eligible expenditure under the R&D tax relief guidelines.
- Note that, for expenditure incurred between 1 April 2021 and 31 March 2023, companies would have been entitled to claim super deductions at 130% FYA, which is more beneficial than RDAs.
Annual Investment Allowance (AIA) or RDAs?
- This first-year allowance is available for current year expenditure on qualifying plant and machinery. Allowances are claimed at 100%, but a limit of £1m per year is available for individuals and companies alike.
- We recommend that, in the first instance, AIA be claimed for special rate pool assets (6% WDA), then general pool assets (18% WDA) up to £1m, any extra qualifying expenditure for R&D purposes, over and above the £1.0million AIA, may be claimed as RDAs.
- Once the taxpayer has utilised the full AIA, it will be more beneficial to claim any outstanding investments as RDAs, as there is no limit annual limit to the value of RDAs which can be claimed.
IMPORTANT NOTE: It is important in all of these scenarios that companies only claim RDAs on expenditure which qualifies according to the relevant legislation.
Visiativ can Support Your Allowances Claim
Tax relief available on commercial property assets is significant but is the most complex area of UK tax legislation. As a result, less than half of all UK businesses entitled to claim capital allowances claim their entitlement, which could be worth hundreds of thousands of pounds when evaluated.
If you’d like more information, please contact Sandy Findlay on 07807 739033 or by email at: [email protected]
Our multi-disciplinary team, including lawyers, tax accountants and surveyors will quantify and allocate expenditure into the correct pools to ensure you obtain the appropriate tax relief.
