Capital Expenditure vs. Revenue Expenditure in R&D Claims

Maximising the return on your R&D business begins with understanding which R&D expenditure can be claimed. Alexander Clifford supports your business by analysing your R&D projects and producing robust claim applications to help you receive the maximum return and fuel further innovation.

The R&D tax credit is a government subsidy scheme that supports businesses like yours by providing tax credits that can be reinvested to fund cutting-edge innovations or mitigate financial burdens. When filing an R&D tax credit claim, it is important to understand the differences between capital expenditure and revenue expenditure. It could be the key to unlocking thousands of pounds in R&D tax relief. Learning the difference between the two types of R&D expenditure could significantly impact the amount of tax relief you’re eligible to receive. 

Let’s break it down to help you identify qualified expenses and ensure you are maximising your tax relief through both the R&D tax credit scheme and the Research and Development Allowance (RDA).

What is Capital expenditure in R&D?

According to HMRC Research and Development Allowance (RDA),  R&D capital expenditure (CapEx) refers to expenses invested to expand, upgrade or improve the long-term growth of your R&D projects. In essence, capital expenditures are significant investments aimed at taking your R&D business to the next level.

For example,

• Purchase of machinery or equipment 
• Vehicles 
• Manufacturing equipment (product development)
• Computers

What is Revenue expenditure in R&D?

R&D revenue expenditure (RevEx) refers to the routine, day-to-day costs incurred in maintaining the operation of your R&D business. These are short-term operational expenses that are essential for the direct execution of R&D projects.

For example, 

• Employee salaries and costs
• Software expenses
• Subcontractors – clerical support staff, maintenance engineers, security staff, administrative and training staff
• Utilities – water, fuel and electricity
• Raw materials used in the R&D process – such as physical materials used in research or testing, but not the ones included in finished/saleable products

In sum, RevEx is the recurring, essential operational cost incurred in everyday routine, whilst CapEx may be a non-essential investment but an expense that could benefit the R&D operation in the long run. 

Common mistakes when identifying Capital expenditure vs Revenue expenditure

 

Which employee expenses qualify as R&D RevEx?

The salaries, Class 1 National Insurance and pension funds of employees involved in R&D activities are regarded as R&D revenue expenditure. Read more here.

Does rent qualify as R&D revenue expenditure?

According to the checklist of R&D costs you can claim from HMRC, rent or leasing costs are excluded from the R&D tax credit scheme.

If I renovated my R&D research lab to expand my team, would the renovation expenses be regarded as R&D CapEx?

Yes. Renovating the research lab of your business facilitates a smoother operation for your R&D projects. The nature of the expense promotes long-term benefits to your business and is therefore qualified as R&D capital expenditure.

I would like to purchase a patented invention/ technology to invest in my research. Is the cost of patent purchase regarded as R&D CapEx?

No. Although the invention/technology may offer long-term value to your business’s growth, the acquisition of rights is not considered qualifying R&D capital expenditure under HMRC’s  guidelines.

Tax claim of Capital expenditure and Revenue expenditure

Now that we have covered the differences between capital expenditure and revenue expenditure, let’s discuss how we claim tax relief for the two types of expenditure. 

HMRC offers tax relief as an incentive for R&D businesses of all sizes across a wide array of industries, supporting them to transform innovative ideas into real-world solutions. Qualifying R&D expenditure is eligible for 2 types of tax relief schemes, depending on the type of cost.

• Revenue expenditure, which is the everyday operational cost, including staffing costs, consumables, and software costs, is eligible for R&D tax credits under the SME scheme and RDEC scheme from HMRC. Qualifying expenditures can be offset through tax relief or reimbursed in cash benefits, providing financial support to your R&D business. 

On the other hand, R&D capital expenditure does not qualify for the R&D tax credits. However, your capital expenditures can be claimed through the Research and Development Capital Allowance (RDA) Scheme. 

Under the RDA, R&D businesses can claim 100% relief on qualifying capital expenditure. The RDA is another tax relief from the HMRC for innovative businesses that offers a 100% tax deduction on qualifying CapEx such as the purchase of equipment, and renovation of research facilities. 

By claiming both the R&D tax credits and RDAs, R&D businesses can maximise their claims and reinvest in their groundbreaking projects with ease. 

How can Alexander Clifford help?

As trusted R&D tax credit specialists, our experts streamline and simplify the claiming process for you while ensuring your business receives maximised benefits at every opportunity. With over 2,400 successful claims filed, our high success rate with HMRC is a testament to why Alexander Clifford should be your trusted choice for R&D tax credits. 

Get a free consultation with Alexander Clifford by filling in the form below, or book an appointment with one of our R&D Tax Relief experts. Let’s work together to maximise your return on innovation in 2025.

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