R&D Tax Relief for Manufacturing Companies: A Practical Guide

Quick answer: UK manufacturing companies often qualify for R&D tax relief where work seeks a technological advance and resolves technical uncertainty, such as new production processes, product development or difficult scale-up. Qualifying spend is relieved under the merged scheme, currently a 20% expenditure credit, covering staff, materials, software and some subcontractor costs.

Manufacturing and engineering firms are among the largest claimants of R&D tax relief, yet many still under-claim because the qualifying work happens on the shop floor rather than in a research department. The relief is not limited to inventing new products; improving how something is made can qualify just as readily, provided it meets the statutory test in HMRC's guidelines on the meaning of R&D. This guide sets out where manufacturing work qualifies and which costs can be included. For a closely related sector, see our guide for engineering companies.

Do Manufacturing Companies Qualify for R&D Tax Relief?

Yes, frequently, because manufacturers routinely solve technical problems that established methods cannot readily answer. A project qualifies where it seeks an advance in science or technology through the resolution of scientific or technological uncertainty. Crucially, the advance can be in a process, not only a product, so developing a faster, cleaner or more reliable way to manufacture an existing item can count [own-analysis].

What Manufacturing Activities Count as R&D?

The qualifying work usually sits where a company is trying to achieve something its team cannot be sure is technically possible at the outset. Common examples include developing new production processes, automating or re-engineering a line to overcome a technical constraint, creating new or improved products, integrating new materials, and solving scale-up problems when moving from prototype to volume, where each involves resolving real technical uncertainty [own-analysis]. Bespoke control software or simulation written to support these problems can also qualify under the definition of R&D.

What Costs Can a Manufacturer Include in a Claim?

A claim is built from specific cost categories, not a percentage of turnover. Eligible costs can include qualifying staff time, consumable materials genuinely used up in the R&D, software, data and cloud computing costs, and some subcontractor and externally provided worker costs, each with its own rules and restrictions on certain overseas expenditure. One trap specific to manufacturing is consumables: materials used up in genuine R&D can qualify, but materials that go into commercial output sold to customers generally cannot [own-analysis]. Our eligible expenditure guide sets out each category.

Which Scheme Applies and How Much Is It Worth?

The value depends on qualifying spend rather than a sector benchmark. Qualifying work is relieved under the merged scheme, currently a 20% expenditure credit for accounting periods beginning on or after 1 April 2024, and loss-making, R&D-intensive companies may instead use ERIS. Our manufacturing sector page gives more sector context, and our free R&D tax relief calculator gives an indicative range from your own numbers.

Get a Written View, No Call Required

If you run a manufacturing business and are unsure whether your process or product work qualifies, reply and we will send a free written eligibility assessment within 48 hours, no call involved [own-analysis].