Capitalised R&D Expenditures

Understanding the relationship between capitalised costs and R&D tax relief can be challenging for companies and their accountants. However, as a business owner, you may be wondering if you can claim tax relief on capitalised R&D expenditure. The answer is yes, but only in certain circumstances. UK companies can claim R&D tax relief on capitalised costs if the expenditure meets specific criteria.

It’s important to note that in this article, we’re discussing expenditure that is usually treated as revenue expenditure being capitalised. Capital expenditure that should be capitalised as a tangible asset is not applicable here and may qualify for Capital Allowances or Research & Development Allowances (RDAs).

Why capitalise development costs?

Under FRS102, companies have the option to either expense or capitalise certain development costs, provided the expenditure meets the relevant legislation’s criteria. Choosing to capitalise usually means wanting to capture the fact that an asset has been created that will have a future benefit to the company.

Can you claim R&D tax on capitalised R&D expenditures?

Costs that have been capitalised in the accounts can still qualify for R&D tax relief, but only if they meet specific criteria outlined in the s. 1308 Corporation Tax Act 2009. For example, the expenditure must have been capitalised as an intangible asset, be incurred during the accounting period, and not be prevented from being an allowable deduction in the calculation of profit.

It’s also important to note that the expenditure doesn’t need to be removed from the balance sheet to include it in an R&D claim. Adjustments can be made in the tax computations without the need to restate any accounts.

Visiativ can help!

Capitalising qualifying costs as an intangible asset should not affect a company’s ability to claim R&D tax relief on those costs, provided they meet the eligibility criteria. However, all amortisation of those costs needs to be added back to avoid ‘double-dipping.’

Visiativ can assist with making the necessary adjustments to the tax computations and provide guidance on claiming R&D tax relief on capitalised costs. If you have any questions or would like further information, please contact us.