Updated: Jul 5, 2020
If your business has benefitted from a “research & development expenditure credit” and you were responsible for providing the building for the people carrying out the qualifying research & development (R&D) activity, there is a fair chance you will also be entitled to a 100% tax relief on a proportion of its acquisition or construction.
This is because the capital allowances rules allow businesses to claim research & development allowances (RDAs) on providing facilities for carrying out research and development. Since building expenditure is ineligible for other forms of capital allowances this incentive can provide both an absolute tax cash saving, and in the case of fixtures installed, a valuable timing advantage.
Buildings used entirely for qualifying R&D
The most straightforward claim for RDAs is when a business intends to use the facility entirely for a qualifying research & development activity.
If you have acquired a building you will still need to exclude the cost of land and the legislation requires a just and reasonable apportionment to separately identify the component parts. This will normally follow the approved Valuation Office Agency (VOA) methodology utilised for other capital allowances apportionment calculations.
Unlike other types of capital allowances there is no requirement to link a purchase RDA claim to a previous capital allowances claim so an ‘unrestricted’ apportionment calculation will often be all that is needed in this situation.
Buildings with mixed R&D use
A more common scenario in practise is to have a building where only part of it will be used for a qualifying R&D activity. In this situation you will need to exclude the non-qualifying parts which can raise a number of practical challenges on how best to approach.
Sometimes a building will be designed with clearly segregated parts (e.g. normal office and management with dedicated testing or product design) but even then, there will almost always be an overlap in use. It is also common to have shared welfare and other facilities needed to support the employment of staff involved in qualifying R&D.
If it isn’t possible to easily distinguish areas in permanent use then an apportionment on a combination of staffing, time or even revenue may be appropriate. The costs of constructing different parts of a building can of course also vary widely so in reality it is common to have a range of calculation options included so as to ensure that any RDA claim is correct, supportable and optimised.
If you would like more details on how research & development allowances and related tax reliefs could benefit your business please do not hesitate to contact us.