Manufacturers claim R&D tax relief for two kinds of work: developing new or improved products, and developing the processes that make them. Both qualify where the work had to resolve genuine technical uncertainty rather than apply methods the industry already understands. Under the merged scheme, £100,000 of qualifying spend is worth £15,000 net at the 25% corporation tax rate.
What manufacturing work qualifies as R&D?
On the product side: development where the required performance cannot be reached with existing materials, designs or formulations, including redesign forced by regulation or by a component becoming unavailable. On the process side, qualifying work is common and regularly missed. At concept level:
- Increasing line speed without losing quality, where the trade-off is not solved by known methods or supplier settings.
- Integrating automation into an existing line where the interaction between new and legacy equipment is uncertain, a pattern we examine in robotics prototyping and technological uncertainty.
- Developing tooling, fixtures or process parameters for a material or geometry the industry has not handled before.
- Scaling up from pilot batches to production volumes where behaviour changes with scale.
Trial runs that get scrapped, and development that fails, still qualify. The relief follows the attempt to resolve the uncertainty, not the outcome.
What does not qualify?
Buying and installing new machinery, however advanced, is capital investment rather than R&D, and capital expenditure does not qualify in any case. Routine quality control, cosmetic changes and efficiency gains achieved by applying known methods do not qualify either. The test throughout is whether a competent professional could readily have resolved the problem with existing knowledge.
What does a manufacturing claim look like in practice?
Midtec Products, a manufacturing company in Ammanford, South Wales, developed an emissions reduction device that could be retrofitted to existing wood-burning stoves after DEFRA released new eco criteria for cleaner fuel burning. The qualifying costs covered staff, agency staff and materials, and the claim was worth £40,000.
“We had excellent advice and support from LimestoneGrey in handling the submission of the claim and guiding us through the process.”
Trefor Jenkins, Director at Midtec Products
The full Midtec Products case study sets out the project. It also illustrates a wider point: a change in industry legislation, whether it opens an opportunity or forces a redesign, is one of the most reliable triggers for qualifying work in manufacturing.
Which costs go into a manufacturing claim?
Staff costs apportioned to development time, including production engineers and operators running trials, not just the design office. Materials consumed in prototypes and trial runs. Agency staff, as externally provided workers, at 65% where they are subject to UK PAYE. Subcontracted development at 65% for unconnected parties, subject to the rules on who claims: a manufacturer developing to a customer’s specification should check which side of the line the contract puts it on, and our guide to contracted-out R&D works through the test. Software used in the R&D also counts. Capital equipment, rent and patent costs never do.
What is the claim worth?
Most manufacturers claim under the merged scheme: a 20% expenditure credit, so £100,000 of qualifying spend gives a £20,000 gross credit, netting to £15,000 at the 25% corporation tax rate or £16,200 where the 19% rate applies. Loss-making companies receive £16,200 net in cash on the same spend, subject to the PAYE cap.
A loss-making SME whose R&D expenditure reaches 30% of its total expenditure can claim up to £26,970 per £100,000 of qualifying spend through ERIS, though that intensity threshold is a high bar for most manufacturers. Grant funding no longer reduces relief under the current schemes; the position is set out in grant funding and R&D tax relief. The claim value calculator gives an estimate on your own numbers, and the ERIS intensity calculator works the 30% test.
What evidence does a manufacturing claim need?
Evidence is rarely a problem in manufacturing if it is captured while the work runs. Batch records, trial run logs, scrap and downtime analysis, and the machine settings tried and abandoned all speak directly to the technical uncertainty. The Additional Information Form, mandatory for every claim since 8 August 2023, describes the projects and their costs to HMRC, so the project descriptions should be written from those production records rather than from memory. Where operators and engineers split their time between development trials and normal production, a defensible apportionment basis matters as much as the records themselves.
Get a straight answer
LimestoneGrey is a firm of chartered tax advisers and chartered accountants specialising in R&D tax relief regulated by ICAEW. We prepare manufacturing claims that are meant to be checked: costed carefully, evidenced from production records, with enquiry support included as standard and the fee agreed before work starts. Two compliance points to hold onto: first-time claimants must notify HMRC within six months of the end of the period of account or the claim is invalid, and HMRC checks roughly one in six claims, so process development should be documented while the trials run.
If you want a straight answer on whether your development work qualifies, get in touch.
Written by Matthew Jones ACA CTA. Last reviewed July 2026.