RDA (Research and Development Allowances)

RDA (Research and Development Allowances) are a specific form of capital allowances that provide tax relief to companies undertaking certain types of research and development in the UK.

The qualifying criteria for RDA are the same as those for the RDEC and SME regimes. But the costs that can be included and the benefit are very different.

Research and Development Allowances provide a time-based incentive to companies undertaking eligible R&D projects that are capital in nature for tax purposes, rather than revenue in nature (as per the RDEC and SME regimes).

This timing-benefit is very different from the direct cash incentive provided by the two regimes for revenue-based expenditure (RDEC and the SME regime).

The RDA themselves allow companies to claim 100% of the capital cost in the year the cost was incurred (rather than applying the appropriate depreciation policy).

One key consideration for RDA claims is that costs that have been subcontracted to third parties can be included within a claim. This is in different to the RDEC regime, where such costs must be excluded from a claim. In some cases, this can mean that the benefit of an RDA claim outstrips that of an RDEC claim - although it is important to remember that it is not a choice between the regimes, but rather, an assessment of which regime the costs qualify under.

Further to this, all third-party costs can be included in an RDA claim at 100% (of their apportioned eligible amount). This is unlike the two revenue-based regimes, where the costs must be reduced to 65% of the of the qualifying amount (as HMRC often see a markup being applied to third-party spend, which they are stripping out with an average static figure).