The manufacturing industry is continuously evolving, with many businesses driving innovation through smarter processes, advanced technologies, and continuous improvements to products and production lines.
However, what many businesses don’t realise is that these improvements could qualify for R&D tax credits, offering a valuable opportunity to reinvest in your operations.
In this blog, we’ll explore how manufacturers can assess their R&D eligibility, how much they can claim, and explain how we can support with R&D tax credits for manufacturing businesses.
What are R&D tax credits?
R&D tax credits are a valuable government incentive aimed at supporting UK businesses that invest in innovation. This extends beyond groundbreaking inventions and can include practical enhancements to products, processes, or systems.
R&D in the manufacturing sector: What criteria needs to be met
Eligible R&D activities often involve the day-to-day problem-solving manufacturers already do.
To qualify, your activity must aim to overcome a scientific or technical uncertainty, something that isn’t easily solved by a competent professional in your field.
This could involve improving production processes, enhancing product performance, integrating new materials, or developing bespoke machinery.
If your team is spending time designing, testing, and refining solutions where the outcome wasn’t guaranteed at the outset, it’s worth assessing whether your project meets HMRC’s R&D criteria.
What can typically be claimed under R&D tax relief?
Manufacturing businesses engaged in qualifying R&D activities can claim a range of costs under the UK’s R&D tax relief scheme. According to HMRC guidelines, eligible costs can include:
- Staff costs: Salaries, National Insurance contributions, and pension contributions for employees directly involved in R&D activities.
- Consumable items: Materials such as raw materials, water, fuel, and power consumed or transformed during the R&D process.
- Software: Costs of software used directly in R&D activities.
- Utilities: Proportionate costs of utilities like electricity and gas consumed during R&D activities.
- Subcontractor costs: Payments to subcontractors for R&D services, provided they meet specific criteria.
- Externally provided workers: Costs of workers provided by external agencies, if they are directly and actively engaged in R&D.
- Clinical trial volunteers: Payments to volunteers participating in clinical trials as part of R&D activities.
It’s important to note that only costs incurred during the R&D project are eligible, and they must have been paid before the claim is made. Additionally, costs that have been subsidised through grants or other financial support may not be eligible under the scheme.
Practical examples of eligible R&D in manufacturing
Still not sure whether your work counts as R&D? Here are a couple of examples specific to the manufacturing sector:
- A manufacturer of automotive components redesigns a part to reduce weight while maintaining strength. The design process, material testing, and performance evaluation involved in overcoming these technical challenges could all qualify for R&D tax credits.
- A food production company develops a new method to extend product shelf life without using artificial additives. Activities such as ingredient trials, process adjustments, and stability testing may be considered eligible R&D work.
In both cases, the business is resolving technical challenges, which is considered one of the key activities for making a successful R&D tax relief claim.
How Edwards can support with R&D tax credits in manufacturing
At Edwards, we specialise in guiding manufacturing and engineering businesses through every stage of the R&D claim process, from identifying eligible projects to support with documentation and submitting your claim to HMRC.
Our specialist team provide a full range of accounting services for manufacturing businesses, to help you stay competitive and navigate sector-specific challenges. Our support includes financial audits and compliance, maximising capital allowances, cost optimisation, cash flow management, and payroll services.
Contact Edwards Accountants today to find out how we can help your business.