R&D tax credits for the manufacturing industry

What qualifies as R&D in the manufacturing sector?

To qualify for R&D tax credits, your business must be attempting to resolve scientific or technological uncertainties. Common examples of r&d manufacturing that qualifies for tax credits include:

What costs can you include in your manufacturing R&D claim?

The main categories of qualifying spend that be claimed are:

My manufacturing company is continually developing. How much of our projects can we claim?

You may be surprised at the range of activities that qualify for R&D tax relief. The scheme is designed to capture the full cost of undertaking innovation, which often includes ‘routine’ support and management. 

We often find claimants are only picking up the design, development, and prototyping phases of a project. In fact, these direct qualify costs only form part of what can be claimed. If activities are considered necessary for resolving the technical uncertainties both indirect and routine activities are eligible. 

Some commonly missed areas include:

Claiming prototype costs

Identifying prototype or trial costs within a production facility can be challenging. Many businesses will capture scrap costs or identify trial batches but linking these to qualifying costs can be difficult. We work with several clients where we have put in place processes to capture these trial costs, check them against an eligibility scorecard, and successful submit an increased R&D tax credit claim.

However, when claiming prototype costs, there is a complex exclusion you will need to consider. R&D in manufacturing often entails trials with materials and hardware. Whether the associated costs can be claimed will depend on what happens with the output of the testing. If you recover the costs through the ‘ordinary course of business’ then the material cost of the items will be excluded from the claim. The challenge is ‘ordinary course of business’ is not defined in the legislation, with HMRC accepting it will be dependent on circumstance. Before including any prototype costs, we always recommend speaking with one of our advisors who can guide you through this tricky part of the legislation.

Other incentives available to manufacturing companies

Businesses in the manufacturing sector should be looking at all R&D incentives to support you through the manufacturing lifecycle. To find out more about these incentives, please click the links below.

Adding it all up – what’s the benefit?

If your manufacturing company is an SME and is profit-making, an R&D tax relief claim will decrease the amount of tax you have to pay. Whereas for a loss-making SME, a cash back payment may be available. The benefit as a proportion of qualifying spend for a profitable business is 16% whereas the cash back is available at up to 19% of qualifying costs for a loss-making business. Businesses that qualify as ‘R&D intensive’ can claim an increased benefit where the cashback is up to 27% of qualifying costs for a loss-making business.

If your company is considered a large company, an R&D claim will increase the profits within the business at a rate of 20% of the qualifying spend. This credit will then translate into a reduction in tax paid or cash back at a rate of 16% of the qualifying spend. Therefore, this scheme can impact measures such as Earnings Before Interest and Taxes (EBIT) as well as providing a welcome cash injection into the business.

How we can help

We're here to fully support you with preparing and claiming R&D tax credits. Should you choose to get specialist R&D support from Buzzacott, we will:

• Identify what scheme your business qualifies for
• Carry out a comprehensive review of your R&D activity, working with you to ensure you are maximising your claim
• Prepare a claim that minimises your potential exposure to a HMRC enquiry
• Aim to fast track your claim and avoid delays in receiving your benefit
• Guide you through the whole claim process or on certain aspects of the claim.

We also work with you to assist in identifying other sources of R&D support and help with planning your R&D strategy, taking into account incentives and grants that might be available. By offering this holistic view of the innovation support needs, we can assist throughout the business lifecycle. Our R&D team at Buzzacott support businesses throughout the year, not just when it’s time to prepare the next R&D claim. 

We take time to listen to your business to understand the goal you’re trying to achieve with your innovation, so we can help you overcome problems and challenges along the way. By being open and honest, we aren’t afraid to challenge our clients to make sure that your claim is correct and you’ve optimised the benefit. We want to help you understand your eligible activities, without holding you up, so you know how to build a robust R&D claim.