Capital Allowances & R&D Tax Relief – Are You Missing Out on Dual Benefits?

For many businesses, navigating the complexities of tax reliefs can seem daunting. However, two critical tax incentives—Capital Allowances and R&D Tax Relief—offer significant opportunities to reduce your tax liability and improve cash flow. When these reliefs are combined effectively, businesses can achieve "dual benefits" that often go unnoticed by many.

What Are Capital Allowances?

Capital Allowances enable businesses to claim tax relief on qualifying capital expenditures, such as machinery, equipment, and certain property improvements. They reduce taxable profits by allowing a percentage of the qualifying costs to be deducted annually or immediately, depending on the type of allowance.

Examples of qualifying expenditures include:

  • Plant and machinery

  • Energy-efficient equipment under the Annual Investment Allowance (AIA)

  • Integral building features like heating or lighting systems

What Is R&D Tax Relief?

R&D Tax Relief incentivises companies to innovate by reducing the cost burden of research and development projects. It applies to work undertaken to resolve scientific or technological uncertainties, whether for new products, processes, or appreciable enhancements made to existing ones.

Eligible R&D costs might include:

  • Staff salaries

  • Software and cloud computing costs

  • Subcontracted R&D activity

  • Consumables such as materials and energy

Where Do They Overlap?

Businesses often overlook how Capital Allowances and R&D Tax Relief can intersect. For example:

  • R&D-linked capital expenditure: Assets acquired specifically for R&D, such as laboratory equipment or prototypes, may qualify for both Capital Allowances and R&D Tax Relief.

  • Buildings used for R&D: Certain integral features, such as heating or power systems installed in R&D labs, can be claimed under both reliefs.

These intersections allow businesses to optimise tax savings across both reliefs, maximising the total financial benefits available.

What Are the Common Oversights?

  1. Misclassification of Assets: Many businesses fail to identify assets linked to R&D activity, leaving valuable allowances unclaimed.

  2. Lack of Coordination: Separate tax advisors for Capital Allowances and R&D may overlook opportunities for dual claims.

  3. Failure to Consider Enhanced Allowances: Specialist categories, such as First-Year Allowances (FYA) for environmentally efficient equipment, can amplify benefits when tied to R&D projects.

How Can Westlock Partners Help?

At Westlock Partners, we specialise in both Capital Allowances and R&D Tax Relief and our team will actively assess your eligibility in claiming relief under both incentives. Here’s how we ensure you don’t miss out on accessing dual benefits:

  • Comprehensive Asset Review: Our team identifies all qualifying expenditures, from machinery to integral features, and assesses their eligibility for both schemes.

  • Integrated Tax Strategy: We adopt a holistic approach, ensuring claims for Capital Allowances align seamlessly with your R&D tax relief submissions.

  • Expert Guidance: With decades of experience and insight into HMRC compliance trends, we ensure every claim is robust and defensible.

Contact our team today to learn how we can assist you in preparing a hybrid claim which effectively captures both your qualifying capital expenditure and R&D activities, maximising your tax relief opportunities available.