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HMRC internal manual

Capital Allowances Manual

RDA: Expenditure on research and development

CAA01/S438

Expenditure on research and development includes:

  • expenditure incurred for carrying out research and development, and
  • expenditure incurred for providing facilities for carrying out research and development.

 

Example

The Masters of Invention buy a laboratory in which they plan to carry on research and development. Their expenditure on buying the laboratory, but not the land on which it stands, is expenditure on research and development because it is expenditure incurred on providing facilities for research and development.

Expenditure on research and development includes expenditure on providing facilities or assets used by employees carrying on research and development.

Example The Masters of Invention provide a car for their employee, Michael, which he uses to travel round between their research sites to check the research work being carried out. The cost of the car is expenditure on research and development.

Expenditure incurred on acquiring rights in research and development or rights arising out of research and development is not expenditure on research and development.

Example The Masters of Invention want to used a patented invention in their research and so they buy the patent rights. The cost of acquiring the patent rights does not qualify for RDA because it is expenditure incurred in acquiring rights arising out of research and development.

Expenditure on the provision of a dwelling is not expenditure on research and development. Where, however, a dwelling is part of a larger building and the rest of the building isused for research and development, the expenditure on the dwelling is ignored if it is not more than one quarter of the cost of the whole building. In applying the one-quarter test to the building, any additional VAT incurred or any additional VAT rebates CA60750 that would be taken into account in arriving at the amountof RDA are ignored.

Example The Masters of Invention buy a building for £1 million excluding the cost of the land. It mainly consists of rooms in which research is conducted but there is a flat at the top of the building that the head of research occupies. If the cost of the flat is £100,000 then the whole of the expenditure of £1 million qualifies for RDA because £100,000 is less than one-quarter of £1 million. If, however, the cost of the flat is £300,000 only £700,000 of the expenditure of £1 million qualifies for RDA.