Capitalisation

Moving costs of development from the P&L to the Balance Sheet helps to recognise the value created from a development program as an intangible asset. There are rules around what costs can be included and how the subsequent depreciation of that asset is treated – talk to your tax agent for further details.

Capitalised costs can still be included as R&D expenditures if they are incurred on eligible activities. They are calculated the same way and subject to the same assessment of eligibility.

If you have capitalised costs, ensure that you raise that with us, so that we know there may be eligible R&D expenditures that are not within your P&L. We will need a separate breakdown of those costs because the rules around what can be capitalised and what can be considered an R&D expenditure are different, and whilst your whole project may be capitalised, your eligible R&D activities may only be a portion of that project.

This will affect the way that the R&D expenditure impacts the tax return, because the ‘add-back’ of expenditure (at item 7 Label D) does not include the capitalised amounts because they weren’t a nominal expenditure in the tax return to add back to.

Amortisation or depreciation of that capitalised asset must then not subsequently form part of an R&D expenditure claim.