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HMRC internal manual

Capital Allowances Manual

RDA: Qualifying expenditure

CAA01/S439 - S440

Qualifying expenditure is capital expenditure that a trader incurs on research and development directly undertaken by the trader or on the trader’s behalf provided that:

  • the research and development is related to a trade that the trader carries on, or
  • the trader sets up and commences a trade connected with the research and development.


RDA is only due if the research and development expenditure is related to the trade being carried on or about to be carried on. Research and development related to a trade includes:

  • any research and development which may lead to or facilitate an extension of the trade; and
  • medical research which has a special relation to the welfare of workers employed in that trade, for example research into an occupational disease.


You should only treat expenditure as incurred on behalf of a trader if there is a clear, close and direct link between the trader and the research undertaken. The relationship between the person claiming the allowances and the person undertaking the research need not be contractual, but if it is not it must be one of agency, or something similar to agency. The fact that research undertaken by someone else is for a trader’s benefit, or is in his interest, is not enough to make the expenditure qualify for RDA. The case of Gaspet Ltd v Elliss [1987] 60TC91 supports this. In that case the company provided funds and equipment necessary to conduct operations under a petroleum exploration licence in return for the rights to ownership of all petroleum won and saved to which the licensee was entitled. It claimed that the expenditure incurred under that agreement qualified forRDA because it was incurred on scientific research directly undertaken on its behalf. The courts rejected the claim. Under the agreement the company was responsible for the payment of expenses by the company carrying out the research and had rights to the ultimate potential fruits of the research, but the agreement was not about research directly undertaken by or on behalf of the company.

Medical research which qualifies for RDA does not include research undertaken for the benefit of the community as a whole. However, medical research undertaken for the benefit of the community as a whole may qualify for RDA as research and development which may lead to or facilitate an extension of the trade. For example, medical research undertaken by a drug company for the purpose of its trade may qualify because it is related to its trade of manufacturing drugs.

Do not give allowances on the same expenditure in respect of more than one trade.

A trader may have a trade which consists solely of research and development. For example, a group of companies may set up a company to carry out research and development on behalf of the group. In such a case all the assets of that company’s trade are used for, or provide facilities for, research and development and so expenditure on them qualifies for RDA unless it is specifically excluded.

No allowances are due for expenditure on the acquisition of, or of rights in or over, land. Where expenditure has been incurred on acquiring a building, structure or fixed machinery or plant make a just apportionment of the expenditure to exclude the part relating to the cost of the land on which the building etc. stands.


When the Masters of Invention buy the freehold interest in a laboratory the price that they pay includes the land as well as the building. When they claim RDA they should make a just apportionment to exclude the part of the price that relates to the land.