R&D Tax Credits for Manufacturing

R&D tax relief for manufacturers and engineers — claimed on the work you actually do on the shop floor. Manufacturing is one of the largest sources of qualifying R&D in the UK, and one of the most under-claimed, because the work rarely looks like research when you are doing it. It looks like solving a production problem.

The scheme as it now stands

• Merged R&D expenditure credit — a single scheme for most companies, at a 20% headline credit on qualifying expenditure, worth roughly 15% net of corporation tax. It applies to accounting periods beginning on or after 1 April 2024.
• Enhanced R&D Intensive Support (ERIS) — for loss-making SMEs whose qualifying R&D is at least 30% of total expenditure: an 86% additional deduction and a 14.5% payable credit.
• Patent Box — an effective 10% corporation tax rate on profits attributable to qualifying patents, subject to the nexus rules that link relief to where the development work was done. Manufacturers with granted patents and no Patent Box election are leaving money in the machine.

What qualifies in a manufacturing business

The test is whether a project sought an advance in science or technology and faced technological uncertainty that a competent professional could not readily resolve. In practice, on the factory floor, that often means:

• Developing a new product or materially improving an existing one where the outcome was not predictable
• Getting a process to work at production volume when it worked at prototype scale — tolerances, cycle times, yield, scrap
• Substituting a material for cost, availability, weight or regulatory reasons and re-engineering the process around it
• Designing or adapting tooling, jigs, fixtures and automation cells where existing solutions did not exist off the shelf
• Integrating machinery, robotics, sensors or software into a line in a way that required genuine development
• Meeting a new regulatory, environmental or energy standard where the compliant design was not obvious

Routine production, quality control, cosmetic changes and simply buying a machine and running it do not qualify — and neither does the commercial risk of a project, only the technological uncertainty.

What can go in the claim

• Staff costs — gross pay, employer National Insurance and employer pension for the people doing and directly supervising the work
• Consumables genuinely used up in the R&D, including materials scrapped in trials, and the utilities consumed
• Software and data licences used in the development
• Subcontracted work and externally provided workers, subject to the restrictions in the current rules
• Prototypes, where they are made to resolve uncertainty rather than to sell

Claims that survive scrutiny

HMRC's compliance approach to R&D has changed completely. Volume claims prepared from a template are being opened routinely, and a claim that cannot identify the competent professional, the uncertainty and the systematic work done to resolve it will not stand. There are also process traps that kill otherwise good claims — companies new to the relief must notify HMRC in advance within a strict window after the period end, and every claim needs a detailed additional information submission before the tax return.

We prepare claims with the engineers, in their language, documented at the time. If we do not think a project qualifies, we say so before you spend money on it. Where a claim is opened, we handle the enquiry.

Beyond R&D

R&D is one line in a manufacturer's tax position. It usually sits alongside capital allowances and full expensing on the machinery that came out of the project, and automation investment planning. See our full manufacturing accountants hub.

Frequently asked questions

What is R&D tax relief worth to a manufacturer now?

Under the merged scheme the credit is 20% of qualifying expenditure, worth around 15% after corporation tax, for accounting periods beginning on or after 1 April 2024. Loss-making SMEs that spend at least 30% of total expenditure on qualifying R&D can instead claim Enhanced R&D Intensive Support, with an 86% additional deduction and a 14.5% payable credit.

We do not have a laboratory. Can we still claim?

Yes — most manufacturing R&D happens on the shop floor, not in a lab. Scaling a process to production volume, re-engineering around a new material, developing bespoke tooling or automation, and improving yield or tolerances where the answer was not predictable can all qualify. The question is whether there was technological uncertainty, not whether there was a laboratory.

Does buying a new machine count as R&D?

Buying and commissioning a standard machine does not. Developing or substantially adapting a machine, tool or automated cell to do something that available equipment could not do may well qualify. The capital cost of the machine itself is a capital allowances question rather than an R&D one, and both can apply to the same project on different costs.

What is the claim notification trap?

Companies that are new to R&D relief, or that have not claimed recently, must notify HMRC in advance within a strict window after the end of the accounting period. Miss it and the claim is invalid however good the underlying R&D. This catches first-time claimants every year, so we check the position before any other work.

How likely is an HMRC enquiry?

Considerably more likely than it used to be. HMRC has expanded its compliance activity substantially and opens enquiries on claims that look generic. A well-evidenced claim identifying the competent professional, the specific uncertainties and the work done is a different proposition to a templated narrative, and we prepare and defend claims on that basis.

Should we be claiming Patent Box too?

If you hold or exclusively license qualifying patents and make profits attributable to them, very possibly. Patent Box gives an effective 10% corporation tax rate on those profits, with relief linked to where the underlying development was carried out. It requires an election and careful streaming of income, and it is commonly overlooked by manufacturers who already claim R&D.