R&D Tax Relief in the Manufacturing Sector

The Research & Development (R&D) tax relief scheme is designed to encourage innovation and global competitiveness by allowing companies an enhanced corporation tax deduction on the money invested in qualifying research and development within the UK. The regime is commonly misunderstood, and potential claims can fall by the wayside without the support of an experienced tax advisor. 

The COVID-19 pandemic has meant businesses are experiencing unprecedented challenges and there has been a significant impact on the manufacturing sector, due in part to the industry's heavy reliance on logistics to fulfil customer and supplier expectations. With heavy transport delays and a reduced workforce that historically has not worked from home, every business has in some way become more resilient by embracing technology to work remotely. 

For years, manufacturers have had the oversight to track the particulars of a project and scale operations up or down accordingly. Many manufacturers have successfully implemented automated inventory management techniques which are designed to order materials when quantities drop below a chosen level. For such methods to work properly, businesses require meticulous planning and the ability to accurately produce timely forecasts. The bespoke technology involved in this process, and the systems implemented to address the rapid changes required to comply with COVID-19 protocols, has led to expedited R&D expenditure to remain operational and competitive. 

Qualifying R&D activities include attempts to innovate, to seek a material improvement in a technology or process, and can include those that already exist. Manufacturers have seized opportunities during the pandemic to invest in R&D for both their ongoing product line and to adapt their businesses to innovate their operations and produce new products such as PPE and Ventilators.

Some common areas where R&D activity may be present for manufacturing companies include:

• Integration of existing machinery and/or technology to improve processes
• Bespoke tooling design and manufacturing
• Taking existing technology from a different sector and incorporating it into an untested environment
• IT functions – including bespoke stock management systems, novel websites etc.

In terms of costs that can be claimed on qualifying R&D activity, these include staff costs (for example: Salary/Bonus/Employer NIC’s/Employer pension costs), consumable costs used up in the R&D activity (including the cost of raw materials used in the testing stages – even if they are subsequently sold as scrap) and potentially sub-contractor costs.

How we can help

We support our clients with Manufacturing sector specific R&D claims and would welcome the opportunity to discuss innovation and investment in your business.

Please talk to our Manufacturing and R&D team today to help assess the potential benefits which might be available to your business under the R&D Tax Credit regime.

We also have much more content on our Manufacturing and R&D knowledge hubs:
Manufacturing Knowledge Hub | Insights | Bishop Fleming
Research & Development Knowledge Hub | Research and Development Tax Credits | Bishop Fleming