Capital Allowances Act 2001 section 438

Expenditure on research and development

Section 438 defines what counts as expenditure on research and development for capital allowances purposes, setting out both what is included and what is excluded, and provides a rule allowing certain buildings partly used as dwellings to qualify.

• R&D expenditure includes all costs of carrying out research and development or providing facilities for it, but excludes the cost of acquiring rights in or arising from R&D
• Expenditure on providing a dwelling is generally excluded from qualifying R&D expenditure
• Where a building is partly a dwelling and partly used for R&D, and the dwelling element accounts for no more than 25% of the construction or acquisition cost, the whole building is treated as used for R&D
• The apportionment of expenditure between the dwelling and R&D portions must be carried out on a just and reasonable basis, and any additional VAT liability or rebate is ignored when applying the 25% threshold