Machinery in manufacturing: cutting costs with R&D capital allowances

Research and development capital allowances (otherwise known as RDAs) allow businesses to claim up to 100% tax relief on any qualifying capital expenditure that directly relates to their research and development (R&D).

Stephen Behan, R&D Business Support Analyst at LUMO, explains what this means for your manufacturing firm.

If you’ve carried out a particular research and development project, say, for example, figuring out how to automate an internal process , then any machinery, equipment or other form of capital expenditure you used to cover the purchases needed to carry out the R&D activity could be, at least partially, claimed back.

RDA covers many different types of capital expenditure, from R&D facilities to company cars. However, for most manufacturing businesses, the most popular type of capital allowance worth claiming back on falls within the plant and machinery bracket.

To help you gain a better understanding of RDAs and how they could help you cut costs through machinery in your manufacturing facility, Lumo has put together a short guide to get you started.

Do you qualify?
Essentially, if your company has already claimed R&D tax relief on a qualifying project then you could almost certainly be eligible to claim RDAs, too (insert victory dance here). For manufacturing businesses, this will most likely take the form of claiming back on the machinery or equipment used to develop your innovative idea.

More specifically, you can claim tax relief on machinery that was used to help you make a technological advancement in a new type of material, product, process, device, or service. Additionally, the type of advancement you make must increase the overall knowledge or capability within the manufacturing field. These particular types of capital allowances are called plant and machinery allowances (PMA), however, might also fall under the annual investment allowances (AIA) or First Year Allowance (FYA) brackets too.

What do you need to consider?
Now that we know that your machinery could fall under the FYA, PMA or AIA category, it’s good to know what each one means.

Basically, if your plant and machinery is categorised as AIA or FYA you could claim up to £200,000 worth of capital. Contrastingly, PMA would see you claim either 18% or 8% (depending on the type of asset) of the amount spent and is usually spread out over several years.

How can you claim?
Your manufacturing company can claim R&D capital allowances up to a year after the deadline of your last tax return – and yes, you’d be right in noticing that the same rule applies for claiming R&D tax credits. So, it’s probably worth doing them both at the same time.

As with doing your own accounting, marketing and operations, you can start an application for RDA and R&D yourself. However, with experts in the field specialising in these particular areas why would you?

To find out if your business is eligible to claim, get in touch with Lumo to discuss how you could help your manufacturing business cut costs and develop financial security.

Contact Stephen Behan, R&D Business Support Analyst, on 01207 460616 or email Stephen.behan@lumo.tax

Machinery in manufacturing: cutting costs with R&D capital allowances

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