Quick answer: Capital expenditure on R&D is spend on assets used in qualifying research, such as laboratory equipment or specialised software with enduring benefit. It does not qualify for the revenue R&D tax credit, but qualifying R&D capital spend attracts a 100% first-year Research and Development Allowance instead.
What is capital expenditure for R&D purposes?
Capital expenditure on research and development refers to spend on tangible or intangible assets used for qualifying R&D activity, such as laboratory equipment, pilot plant, or specialised software licences with enduring benefit. Such expenditure does not qualify for revenue R&D tax credits, which are limited to deductible revenue costs. Instead, qualifying R&D capital spend attracts a 100% first-year Research and Development Allowance under the Capital Allowances Act 2001.
How does HMRC treat R&D capital expenditure?
HMRC guidance on Research and Development Allowances is at CA60000 in the Capital Allowances manual, with CIRD81810 confirming the exclusion of capital items from the revenue R&D claim. The 100% first-year allowance for R&D capital expenditure is set out in Part 6 of the Capital Allowances Act 2001.
What does R&D capital expenditure look like in practice?
A biotechnology company spends £350,000 on a specialised cell-culture bioreactor used exclusively for a qualifying research project. The cost is excluded from the revenue R&D tax credit claim, since it is capital in nature. The same £350,000 is claimed in full as a Research and Development Allowance in the year of acquisition, producing an immediate deduction against taxable profit.
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Frequently asked questions
It is spend on tangible or intangible assets used for qualifying R&D activity, such as laboratory equipment, pilot plant, or specialised software licences with enduring benefit.
No. Capital items are excluded from the revenue R&D claim. Instead, qualifying R&D capital spend attracts a separate 100% first-year Research and Development Allowance under the Capital Allowances Act 2001.
Typical examples are laboratory equipment, pilot plant, or specialised software licences with enduring benefit that are used for a qualifying R&D project.
The Research and Development Allowance gives a 100% first-year allowance under the Capital Allowances Act 2001 for qualifying capital expenditure on R&D, meaning the whole cost can be deducted against taxable profits in the year it is incurred, rather than depreciated over several years.
No. Capital expenditure is excluded from the revenue-based figure used to calculate the merged scheme's 20% above-the-line credit or the ERIS payable credit. It is relieved separately through the Research and Development Allowance rather than being added to the enhanced-expenditure figure.
Yes. Where an asset is used partly for qualifying R&D and partly for other business purposes, only the R&D-attributable proportion qualifies for the Research and Development Allowance, following the same apportionment principle HMRC applies to revenue R&D costs.