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What if, despite your best efforts, your new product flopped? You genuinely believed that your latest invention would be a hit. You poured time, resources, and effort into developing it. However, once it hit the market, it failed to gain traction. It costs your business more than you anticipated. You were sure that customers would embrace your innovation, but their response proved otherwise. Fortunately, this story doesn’t have to end with you in the hole. If your business had taken the time to research and understand R&D capital allowances before launching the product, it could have saved a significant amount of money on its next innovation. Even if your following product fails, at least you’ll recoup some of the costs associated with its development. R&D capital allowances can help you offset some of the losses.
In this article, we will discuss R&D capital allowances in detail, especially as they pertain to startups and tech companies. We’ll also cover how to claim R&D tax relief and explain how Haven’s accounting services for small businesses can help you get started.
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How are R&D Capital Allowances Different from Other Allowances?
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What are R&D Capital Allowances?
R&D Capital Allowances, officially known as Research and Development Allowances (RDAs), are a special type of tax relief that allows UK companies to deduct 100% of the qualifying costs of R&D-related capital assets from their taxable profits in the year the expense is incurred. RDAs are generous, immediate, and uncapped, unlike other capital allowances that might be capped or spread across multiple years.
This means they help ease the financial strain of investing in innovation. If you’re spending on things like:
A new lab or R&D facility (excluding land)
Specialised plant, tools, or testing equipment
Internal software used for R&D
Vehicles used directly in your research
You may offset the entire cost against your taxable profits. This deduction could significantly lower your tax bill, freeing up cash to reinvest.
Why R&D Capital Allowances Matter for Startups and Tech Companies
R&D is expensive. Whether you're building prototypes, experimenting with new tech, or scaling up your infrastructure, the costs can quickly pile up. RDAs are designed to reward that investment, not just in people and processes (as R&D tax credits do), but in physical and digital infrastructure that enables research.
If you’re developing new products or processes, a capital allowance survey might even uncover relief for assets you didn’t realise qualified. Around 90% of cases such surveys identify additional capital costs, like building improvements or embedded systems, that can unlock substantial tax savings.
Who's Already Benefiting from R&D Capital Allowances?
The manufacturing and industrial sectors are already seeing the upside, with £12.2 billion in claims making up 12% of total capital allowance relief in the UK. But tech startups, deep tech firms, and R&D-heavy scaleups often underclaim or miss out entirely, usually because R&D tax credits aren’t as well-known as R&D tax credits. If you’re investing in R&D infrastructure, RDAs can be a powerful tool to maximise your tax efficiency and improve cash flow.
Don’t leave money on the table, especially when those funds could go straight back into fuelling your next breakthrough. Talk to a tax advisor with R&D experience to see what qualifies. The sooner you factor RDAs into your investment strategy, the better your financial runway will look.
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How are R&D Capital Allowances Different from Other Allowances?
If your startup is investing in innovation, whether that’s building a prototype, developing a new product, or setting up a specialised lab, you might be eligible for Research and Development Capital Allowances (RDAs). These are often overlooked, but they can unlock significant tax relief compared to standard capital allowances.
100% Upfront Relief with No Cap
The standout difference? RDAs give you 100% tax relief in the year you spend the money, no matter how big the investment. That’s very different from standard capital allowances, where tax relief is usually spread over several years, and subject to caps like the Annual Investment Allowance (AIA), which is currently limited to £1 million.
So if you’re spending over that threshold, say, on lab equipment, testing facilities, or specialist R&D tools, RDAs can provide instant relief and help you free up more cash to reinvest into your growth.
Broader Range of Qualifying Assets
Unlike other allowances, RDAs aren’t restricted by the nature of the asset (except land). That means you can claim on things like:
R&D facilities and buildings
Specialist R&D equipment
Machinery used in experimentation
In contrast, AIA and First-Year Allowances don’t cover property or facilities, so if you’re expanding your physical R&D capability, RDAs are often the better route.
Ideal for Cash-Strapped Startups
For startups, especially in tech and deep tech, cash flow is king. RDAs accelerate your tax relief and can reduce your Corporation Tax bill in the same year the expense occurs. That could mean tens or hundreds of thousands of pounds saved now, rather than later, giving you a stronger runway.
If your business is doing qualifying R&D and investing in capital assets to support it, it’s worth speaking with a tax advisor to see if RDAs apply. They’re not just for big corporations; they’re built for innovation, and that includes startups like yours.
Let Haven Handle the Numbers While You Build
Let your business take flight while Haven manages your financial runway. Built by founders for founders, we handle everything from daily bookkeeping to complex tax filings and R&D credits that put cash back in your pocket, as well as fractional CFO services. Join 400+ startups who've saved millions in tax credits, countless hours of administrative work, and never missed a filing deadline - all while accessing 24/7 Slack support from CPAs who understand the unique challenges of growing businesses.
Book a call today to learn how our dedicated team can help you focus on building rather than bookkeeping.
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R&D Expenses that Qualify for Capital Allowances
When you invest in facilities, equipment, or infrastructure to support R&D, some of that spending could qualify for Research and Development Capital Allowances. To be eligible, the expenditure must either:
Directly support R&D activities
Provide facilities for carrying out R&D
This means the asset must be either used in or enable research that meets HMRC’s definition of qualifying R&D (the same as for R&D tax credits). This includes resolving scientific or technological uncertainty, not just routine product development.
Construction, Expansion, or Renovation of R&D Facilities
If you're building or modifying a space to house R&D like a lab or testing area, the construction or refurbishment costs (excluding land) can qualify. Even adapting an existing building to meet technical R&D needs may be eligible.
Specialised Plant and Machinery
This covers high-tech or bespoke equipment used in R&D, including the purchase, installation, integration, and customisation. Think 3D printers for prototyping, biotech lab equipment, or robotic test rigs.
Internal IT Systems
IT infrastructure used to support R&D, like servers, data pipelines, or high-performance computing, can qualify if it’s integral to your research.
Energy-Efficient Infrastructure
Investments that support sustainability in R&D, such as efficient climate control systems for labs, may also be eligible.
Company Vehicles for R&D Use
Vehicles explicitly used for R&D projects (e.g., mobile testing units or specialist engineering vans) can be included, though general company cars don’t qualify.
What Doesn’t Qualify?
Some expenses are explicitly excluded, including land. You can’t claim RDAs on land purchases, even if needed to build an R&D facility. Rights over land, such as:
Leases
Licences
Easements
Assets not used in or for:
R&D
General office space
Admin IT
Equipment used only for commercial production won’t count
If your startup is scaling R&D and investing in the infrastructure to support it, RDAs can significantly boost your cash position. But to make a successful claim, you’ll need to prove how each asset is used to qualify for R&D. It’s worth documenting this from the outset and speaking with a specialist advisor to maximise your claim.
Why Claim R&D Capital Allowances?
For startups investing in innovation and R&D, Capital Allowances are a tax relief scheme that can significantly boost cash flow. Think of them as a fast, generous tax relief scheme designed to help recover a big chunk of what you’re spending on R&D infrastructure.
Unlike the Annual Investment Allowance (AIA), which is currently capped at £1 million, RDAs are entirely uncapped. That means whether you’ve spent £200,000 or £2 million on qualifying R&D assets, you can claim 100% relief in the year you pay, with no delays, no restrictions.
Missed an Opportunity? You Can Still Claim R&D Capital Allowances
Missed an opportunity to claim R&D Capital Allowances for an earlier accounting period? You’re not out of luck. RDAs can be claimed retrospectively, up to two years after the end of the accounting period when the spend occurred. This flexibility can help you recover money you didn’t realize you were entitled to.
R&D Capital Allowances Boost Your Cashflow
R&D spending can be a significant upfront cost, especially for startups building labs, workshops, or custom tech setups. Capital Allowances provide immediate 100% tax relief, which could mean a £19 Corporation Tax saving for every £100 spent. That’s real cash you can redirect into product development, hiring, or runway extension.
R&D Capital Allowances Cover What Other Allowances Don’t
A significant advantage of R&D Capital Allowances is that they cover many costs that other capital allowances don’t, like:
R&D buildings
Lab facilities
Internal IT systems
This makes them particularly useful if you’re investing in infrastructure that sits outside the scope of standard Plant and Machinery Allowances.
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R&D tax credits can play a vital role in boosting cash flow for any business, especially startups and small companies with limited resources. These valuable tax incentives reward companies for innovating and developing new technologies, products, or processes. The credits can be substantial, often worth thousands or even millions of dollars.
Claiming them can be complex, and many businesses miss out on valuable benefits simply because they don’t understand the process or qualify for R&D tax credits. That’s where Haven comes in. We help businesses maximize their R&D capital allowances, enabling them to focus on what they do best, building innovative products and services.
Haven’s R&D Tax Credit Services
Haven’s R&D tax credit services start with identifying qualifying activities and expenses that can help you maximize your tax credit. We work diligently to ensure you receive the best possible refund, allowing you to boost your cash flow and reinvest in growth.
Our experts stay on top of the latest developments and changes in tax laws, so you don’t have to. We also help you stay compliant with IRS guidelines, allowing you to avoid audits and costly penalties. If your business is ever audited, our team will walk you through the process and defend your claim to the IRS. We can help you with your ongoing R&D tax credit claims as you continue to innovate and grow.
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