Engineering companies claim R&D tax relief for development work that goes beyond established practice: where standard methods, published data and supplier knowledge could not resolve the technical problem, and your engineers had to. For most engineering firms the merged scheme applies, worth 15p per £1 of qualifying spend at the 25% corporation tax rate and 16.2p where the 19% rate applies.
What engineering work qualifies?
Work that resolves a technological uncertainty a competent engineer could not readily settle. Familiar shapes include:
- Designing to a constraint set that established methods cannot satisfy together: weight against strength, temperature against cost, throughput against tolerance.
- Working with new or substitute materials where performance data does not exist for your application.
- Scaling a process from workshop or laboratory to production, where behaviour changes with scale in ways that cannot be predicted from the smaller version.
- Integrating systems or retrofitting equipment where the combined behaviour is unknown until built and tested.
Prototypes that failed are still qualifying work: the relief follows the attempt to resolve the uncertainty, not the result. The iteration record, what was tried, what broke and what changed in the next build, is the best evidence a claim can have. We examine that pattern in robotics prototyping and technological uncertainty, and it applies well beyond robotics.
What does not qualify?
Routine design work. Applying standard engineering practice, design codes and established solutions is skilled work, but it is not R&D for tax purposes. Nor are aesthetic changes, minor adaptations of existing products, or projects whose only uncertainty was commercial. The honest position is that many engineering projects contain a qualifying core surrounded by routine delivery, and the claim should be drawn around the core.
Who claims when the engineering is done under contract?
It depends what the contract contemplated. For accounting periods beginning on or after 1 April 2024, the customer claims where it intended or contemplated the specific R&D when the contract was made; otherwise the contractor claims in its own right. Contractors serving overseas or untaxed customers can also claim in their own right. Where you subcontract parts of your own R&D to unconnected parties, those payments qualify at 65%.
For a contract engineering firm this is often the single biggest question in the claim, and the contract wording decides it. Our guide to contracted-out R&D works through the scenarios before you assume the claim belongs to the customer, or to you.
What is an engineering claim worth?
£100,000 of qualifying spend under the merged scheme gives a £20,000 gross credit: £15,000 net at the 25% corporation tax rate, £16,200 at the 19% rate or for a loss-making company. A loss-making SME whose R&D expenditure reaches 30% of its total expenditure can claim up to £26,970 on the same spend through ERIS, though profitable firms are the more common case in engineering.
Qualifying costs run wider than salaries: materials consumed in prototypes and trials, apportioned staff time including workshop staff on development builds, externally provided workers on a UK payroll, and software used in the R&D. Grant funding no longer reduces relief under the current schemes; see grant funding and R&D tax relief. The claim value calculator gives an estimate on your numbers, and the ERIS intensity calculator tests the 30% ratio.
What evidence should an engineering firm keep?
The records most engineering companies already produce, kept with the claim in mind. Design reviews and drawing revisions show the constraint being fought. Test reports, failure investigations and non-conformance records from trial builds show the uncertainty being worked through. Timesheets, or another defensible basis for apportioning engineers’ time between development and delivery, carry the costing. Claims assembled from year-end memory are the ones that struggle when questions come: HMRC checks roughly one in six R&D claims, so it pays to assume yours may be among them.
What does an engineer-led claim look like in practice?
Our case study on Midtec Products shows the shape. An engineer-led manufacturer in Ammanford developed an emissions reduction device that could be retrofitted to existing wood-burning stoves, prompted by new DEFRA eco criteria, and received a £40,000 benefit covering the staff, agency and material costs of the development work. A change in industry legislation is one of the most reliable triggers for qualifying work in engineering businesses: it forces you past what established practice can deliver.
Talk it through
LimestoneGrey is a firm of chartered tax advisers and chartered accountants specialising in R&D tax relief regulated by ICAEW. Every claim is prepared by our specialist team and signed off by a chartered adviser, enquiry support is included as standard, and the fee is agreed before work starts. First-time claimants should also note the claim notification deadline: six months from the end of the period of account, after which the claim is invalid.
If you think your engineering work may qualify, or you want a second view on a claim you already file, get in touch.
Written by Matthew Jones ACA CTA. Last reviewed July 2026.