Think R&D Tax Credits Aren’t for You? Most Manufacturers Qualify Without Realising
If you run a manufacturing or engineering business in the UK, there’s a good chance you’re doing R&D work without realising it. Many of our manufacturing clients are surprised to discover that the technical problem-solving happening on their factory floor every day actually qualifies for substantial tax relief.
The reality is most innovation in manufacturing doesn’t happen in laboratories. It happens when your engineers are figuring out how to make things work better, faster, or to tighter specifications than before.
What Counts as R&D in Your Manufacturing Business?
According to the latest guidance, R&D is any project that seeks to achieve an advance in science or technology by overcoming uncertainties that competent professionals in your field can’t readily resolve.
In plain English? If your technical team is solving problems where the solution isn’t obvious, that’s likely R&D.
Real Manufacturing R&D Examples
Here are examples that might qualify for R&D tax relief in UK manufacturing businesses:
Precision machining challenges: When you need to achieve tolerances of ±0.001mm at production speeds, and standard tooling won’t deliver that combination of accuracy and throughput, the development work to make it happen qualifies. This includes designing custom fixtures, managing thermal expansion, and compensating for tool wear.
Joining dissimilar materials: Welding aluminium to steel at production speeds is notoriously difficult. There’s no off-the-shelf solution that delivers the required joint strength without metallurgical problems. The experimentation with welding parameters, joint designs, and thermal management to find a solution that may qualifying R&D.
Advanced coatings: Developing coating processes that extend cutting tool life by 200-300% when existing coatings fail at your operating temperatures involves genuine technical challenges. Testing different coating compositions and application methods to achieve the required performance that may be R&D.
Electronics thermal management: Designing PCB layouts for high-power applications where standard thermal design rules no longer apply. When heat dissipation becomes critical and you need to develop novel approaches using unusual materials or layouts, that’s qualifying development work.
Custom automation: Building adaptive control systems that respond to real-time sensor feedback isn’t simple automation. When you’re creating control algorithms from scratch because no existing system handles your specific requirements, that development work qualifies.
Miniaturised assembly: Developing processes to handle tiny components (like 0.4mm × 0.2mm packages) when your standard equipment can’t achieve the placement accuracy you need involves real technical challenges in vision systems and mechanical precision.
Disclaimer: The examples in this article are for illustration only. They’re based on common situations in UK manufacturing and engineering, but they may not apply to your business exactly. Whether your projects qualify for R&D tax relief depends on your specific technical and financial details and HMRC’s current rules. Always speak to a qualified tax advisor before submitting a claim.
What You Can Claim: Eligible Costs Under the Merged R&D Scheme
The merged R&D scheme (introduced April 2024) lets you claim relief on:
- Staff costs – Salaries, employer’s NI, and pensions for engineers and technicians doing R&D work
- Subcontractors – Payments to UK-based companies doing R&D work for you (65% claimable)
- Materials – Raw materials, test pieces, and consumables used up during R&D (but not materials in products you sell)
- Software – CAD, simulation, and analysis software used for R&D projects
- Agency staff – Technical contractors working on your R&D under your direction (65% claimable)
All R&D work must generally be carried out in the UK to qualify.
What Doesn’t Qualify
These are the most common mistakes:
- Patent application costs (though the development work leading to the patent does qualify)
- Work to meet regulatory requirements without developing new technology
- Production costs after R&D is complete
- Installing off-the-shelf equipment, even if it’s new to your business
- Routine problem-solving using standard industry methods
- Market research or business development
Recent Changes You Should Know
From April 2024, several important changes affect manufacturing businesses:
- The SME and large company schemes merged into one
- R&D work must be done in the UK (with limited exceptions)
- First-time claimants must notify HMRC within 6 months
- Additional paperwork is required before submitting your claim
- Loss-making R&D-intensive SMEs can get enhanced support
Getting Your Documentation Right: How to Build a Strong R&D Claim
HMRC has increased scrutiny on R&D claims. Your documentation needs to clearly answer four questions:
- What’s the technical advance you were seeking?
Focus on the technology challenge, not the commercial product. “Developing a welding process that achieves 80% joint strength on aluminium-steel combinations” not “Making a better chassis.” - What technical uncertainties did you face?
Show that competent professionals in your field couldn’t readily solve this. It needs to be genuine technological uncertainty, not just “we didn’t know how to do it.” - How did you overcome the uncertainties?
Document your experiments, prototypes, iterations, and failures. HMRC wants to see systematic investigation, not lucky guesswork. - Why couldn’t an expert work it out easily?
Provide evidence: no published solutions exist, you consulted experts who confirmed it was challenging, or the technical principles involved were uncertain.
Documentation Tips for Business Owners
- Keep records as you go – Don’t try to recreate R&D narratives months later
- Save technical reports and test results – These prove you were doing systematic work
- Document your failures – Failed experiments are still qualifying R&D
- Note when R&D starts and stops – Be clear about when you moved from development to production
- Keep evidence of technical expertise – Your team’s qualifications and experience matter
Common Questions from Manufacturing Business Owners
“We do bespoke work for clients – does that count?”
Yes, it can. If you’re solving genuine technical challenges to fulfil contracts (not just following specifications), it qualifies. Recent tribunal cases confirmed that contract work isn’t automatically excluded.
“We make custom products but each one is different – is that R&D?”
Not automatically. The question is whether each project involves new technical challenges, or whether you’re applying the same techniques to different specifications.
“How long does it take to get the money?”
HMRC aims to process most R&D tax credit claims within 28 days, though complex claims can take longer.
“Can we backdate claims?”
Yes, you can claim for the past two years (within certain time limits). Many businesses discover they’ve been doing qualifying R&D for years without claiming.
“What if we’re not sure if our work qualifies?”
HMRC has created an online tool to help you check. However, working with specialists who understand both manufacturing and R&D claims is usually the most reliable approach.
Is It Worth Claiming?:
The Numbers Speak for Themselves.
For most manufacturing businesses doing genuine development work, absolutely yes.
The real question isn’t whether to claim – it’s whether you’re capturing all the qualifying work you’re actually doing. Many businesses significantly underestimate how much of their technical development qualifies.
Consider this: if you employ three engineers who spend even 40% of their time on qualifying R&D activities, you could be looking at £50,000-80,000 in staff costs alone. Add materials, subcontractors, and software, and the numbers become substantial.
Why Manufacturing Businesses Miss Out
The biggest reason manufacturing companies don’t claim? They don’t think what they do counts as “research and development.”
But HMRC’s definition is much broader. Your engineers solving difficult technical problems on the factory floor, experimenting with processes, developing custom solutions – that’s R&D.
Take the Next Step
If you’re working on:
- Improving processes beyond standard industry methods
- Developing custom tooling or automation
- Working with challenging material combinations
- Solving technical problems that don’t have obvious solutions
- Pushing the boundaries of what your equipment or processes can achieve
…then there’s a strong chance you have qualifying R&D.
Ready to Find Out What You Could Claim?
Skynet Accounting is a specialist accounting firm for Manufacturing and Engineering firms. We understand both the technical challenges you face and how to present them to HMRC effectively.
We can help you:
- Identify which of your projects qualify
- Document your R&D activities properly
- Calculate your potential claim accurately
- Submit claims that stand up to HMRC scrutiny
- Maximise the relief you’re entitled to
Contact us today for a free initial assessment of your R&D activities.
Many manufacturing businesses are sitting on substantial R&D claims without realising it. The question isn’t whether you’re doing R&D – it’s whether you’re claiming the relief you’ve already earned.
PS: This article provides general guidance on R&D tax relief for manufacturing businesses. Every business’s circumstances are unique, and we recommend discussing your specific situation for R&D tax relief eligibility.
Written by Yesim Tilley Founder of Skynet Accounting
Click on the link below and apply for a call:
Apply For a Call – Skynet Accounting – Accountants For Manufacturing & Engineering
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