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R & D in Manufacturing

In the fast-moving world of smart technology, the ability to innovate and adapt to customer requirements is an essential weapon in the manufacturers’ armoury, hence flexibility has never been more important than it is today. To meet industry needs, many manufacturers find themselves investing in their research, development and test capabilities and, at Innovation Tax, we understand the importance of having a specialist team to help guide you along the way.

Many Small- and Medium-sized Enterprises (SME’s) manufacture in small batches to meet specific customer requirements and, therefore, the ability to develop and provide bespoke solutions often places them at a significant market advantage. However, the increasingly competitive environment creates the need to align this with cost-effectiveness, requiring manufacturers to explore a multitude of ideas and concepts through a programme of trialling and testing in order that variations in product specification from any given customer can be catered for promptly, reproducibly and economically.

Research and Development within the manufacturing sector isn’t just about finding new ways to do things; it can extend to making appreciable improvements in process efficiency or raw material usage or simply in getting previously disparate systems to work in synergy with one another.

Examples of the type of projects which are likely to qualify for R&D Tax Credits within manufacturing include;

  • Design and development of new products
  • Appreciable improvement within existing processes
  • Increase cost effectiveness of manufacturing processes through automation
  • Evaluation of new materials to increase/improve performance within a product, process, system or device
  • Prototyping and 3D modelling activities
  • Testing and trialling activities carried out to test efficiency, accuracy, robustness, durability and weight
  • Designing new processes to allow for a more efficient flow of materials
  • Modification of machinery to adapt the intended use and add additional capabilities
  • Development of computer-controlled equipment
  • Improve sustainability of new and existing products and processes
  • Requirement to adhere to regulatory requirements requiring processes to be developed / altered
  • Design and development of innovative safety equipment
  • Activities to scale up production

The manufacturing sector accounts for 25% of all R&D claims made, with the latest showing £1.25b of relief claimed by manufacturing companies in the 2017-18 period. The total amount claimed for this period is expected to increase as HMRC are still receiving claims for this period.

R&D is recognised as an important factor in economic growth and balance and can lead to highly valued technologies and strategies, which could derive potential value when considering sustaining a competitive advantage. Furthermore, qualified R&D projects allow manufacturers to claim tax relief on relevant costs with the help of the R&D Tax Credit legislation, resulting in either a reduced tax liability or, where a company may be loss-making for tax purposes, a payable tax credit.

R&D Tax Relief can be predominately claimed on revenue expenditure in the following cost categories:

  • Staffing
  • Subcontracted services
  • Externally Provided Workers (agency or temporary personnel)
  • Raw materials, software licences and utilities (gas, electricity, water) consumed / used up

If you’re a manufacturer (or have clients who are) and wish to learn more about how R&D may already be touching your business, call Innovation Tax today on 0203 803 4600 for a no-obligation assessment of how you can benefit from your past endeavours, and for those which may lie ahead.