Key discussions at MACH 2026 highlighted a major issue for the UK: a strong ability to generate innovative ideas, but a persistent challenge in scaling them into successful businesses. An R&D tax relief claim can assist in bridging the gap to scale up, but successful claim hinges on three things: clear eligibility, robust documentation, and a defensible link between qualifying activities and costs. In this article, we outline how to approach a robust, supportable manufacturing R&D claim.

What can be claimed

According to HMRC’s guidance, eligible R&D must seek an advance in science or technology, by overcoming technological uncertainties. This requirement is often misunderstood within the manufacturing sector as meaning something new, but this is not sufficient to make a claim.

Eligibility assessments therefore need to go beyond project titles such as ‘process improvement’ or ‘new product introduction’ and instead examine the underlying technical problem‑solving work. Businesses must clearly differentiate between research and development and operational testing for empirical insights.

To do this properly:

• Engineering and technical teams must understand R&D eligibility criteria

• Finance teams must work closely with production and engineering

• Eligibility decisions must be made project‑by‑project, not at department level

In our experience, manufacturing claims often struggle when R&D activity is too broad or mixed with operations, making the process complex for little gain. We offer a practical method to clarify your operations and ensure the effort matches the anticipated benefit.

Another common issues we see is businesses focusing on include new machinery, improvements to process or upgrades to software. As capital expenditure cannot be claimed, focusing on new machinery or production line upgrades can end up with a very limited claim. It is better to focus on process improvements and product development as these areas may unearth greater qualifying costs. Successful claims should highlight unresolved technical challenges and the systematic efforts made to address them.

R&D within manufacturing environments

Outside of new product development, manufacturing R&D rarely sits neatly into separate projects. It is often embedded within production, conducted alongside customer orders and iterative and reactive to real‑world constraints. This creates a challenge when applying HMRC’s guidance, which assumes R&D is easily distinguishable from routine activity.

Preparing claims broadly at the departmental or cost-centre level, without linking engineering time to specific technological uncertainties, is risky. HMRC is unlikely to accept vague terms like ‘continuous improvement’ or ‘engineering support’.

Instead, we recommend identifying specific R&D workstreams or phases within larger programmes, focusing on areas where the outcome was initially uncertain, and clearly separating experimental or investigative work from routine production, installation, or commissioning tasks.

Manufacturing R&D is most effectively evaluated by process change, product variants, or scale‑up challenge, rather than individual tasks or day‑to‑day engineering activities.

Manufacturing process improvement and R&D tax relief

Continuous improvement methodologies such as Lean manufacturing, Six Sigma, and Kaizen are well‑established across the manufacturing sector. These approaches play a vital role in improving efficiency, quality, cost and throughput. However, their relationship with R&D tax relief is often misunderstood or completely overlooked.

While some process improvement activity can qualify as R&D, much of it will fall outside the scope of the relief. It is essential to know where structured operational improvement ends and qualifying R&D begins, and to clearly demonstrate that distinction.

Evidence, trials, and technical documentation

It is not sufficient to provide only high-level estimates or cost centre eligibility, HMRC requires clear evidence that the work has been undertaken, and documentation detailing how it relates to the costs being claimed. In manufacturing, this evidence often already exists, but is not captured with R&D in mind. Useful sources include:

• Trial plans and test reports

• Failed prototypes or pilot runs

• Process validation data

• Design iterations and technical drawings

• Engineering change notes

The key is joining these records together to tell a coherent R&D story. Reconstructing this evidence long after production significantly weakens a claim.

Linking costs to qualifying activity

Cost identification is often one of the most challenging aspects of manufacturing R&D claims. Manufacturing businesses typically incur costs across direct staff, consumables and materials, prototypes and trial runs and subcontracted testing or specialist support.

Without project‑based tracking, these costs are often recorded under standard general ledger codes, which can lead to claiming a proportion of total spend. This approach frequently leads to non‑qualifying production or commercial costs being included, which increases the enquiry risk. HMRC will have concerns around excluding sold prototypes or test items. This restriction is often overlooked, which will result in an overstated R&D claim.

A robust claim requires clear linkage between qualifying R&D activity and costs, input from engineering teams to identify where time and materials were used experimentally and a cost methodology that is consistent, auditable, and repeatable. We support manufacturing businesses in building practical approaches that work with existing ERP and production systems, rather than creating unnecessary administrative burden.

Making the best use of the R&D tax credits scheme

Innovation and invention within the manufacturing sector is complex and expensive to undertake. An R&D claim can provide an added cash boost as the development work is taking place, and can help improve project ROI by reducing the overall cost of the work.

However, many manufacturing activities are described internally as ‘development’, but that does not mean they qualify as R&D for tax purposes. HMRC has been clear that misunderstanding eligibility boundaries is a major source of error in manufacturing claims.

As scrutiny of R&D claims increases, businesses need to be confident that they can clearly articulate:

• Where R&D starts and ends within their operations

• Why specific projects or workstreams qualify

• How claimed costs relate directly to technological uncertainty

• Avoiding errors with capitalised costs

Getting things wrong can lead to delays in receiving cash support and result in extra work to get a claim approved. Therefore, getting the claim right first time is soon important to ensuring this scheme works to support your business.

Next steps

If your organisation is navigating the evolving R&D tax relief landscape our team can help. Get in touch with our R&D tax specialists via the form below to discuss your next manufacturing claim.