R&D Tax Relief for Manufacturing Companies: Which Projects and Costs Qualify

Manufacturing is one of the biggest users of R&D tax relief for manufacturing in the UK — the sector accounts for around a quarter of all R&D claims (24% in HMRC's 2022-23 statistics). Yet many manufacturers still under-claim, because the everyday work of solving production problems, developing new products and pushing processes further doesn't always feel like "research". If your team is overcoming genuine technical uncertainty — not just applying known methods — a share of that work very likely qualifies.

This guide sets out which manufacturing projects and costs qualify, how the current merged scheme works, and the sector-specific traps that trigger HMRC enquiries.

What counts as R&D in manufacturing

The tax definition is the same across every sector, and it's stricter than the everyday meaning. A project qualifies only if it seeks an advance in science or technology by resolving scientific or technological uncertainty that a competent professional couldn't readily work out. This is set out in HMRC's manual at CIRD81900.

Two tests matter for manufacturing claims:

• The advance must be in the field, not just for your business. Achieving something a competent engineer could readily look up or specify isn't an advance — even if it's new to your factory.
• There must be genuine technological uncertainty. If a competent professional could predict the outcome, it's routine production engineering, not R&D.

For a fuller walk-through, see our guides to qualifying R&D activities and evidencing technological uncertainty.

Manufacturing projects that typically qualify

Qualifying work usually pushes beyond what established methods, materials or equipment can reliably deliver:

• New or improved products — developing products where performance, tolerance or durability targets can't be met with existing designs.
• Process innovation — developing a manufacturing process that's faster, more precise, less wasteful or more repeatable where the outcome is genuinely uncertain. Process improvement is one of the most commonly missed qualifying areas in manufacturing.
• Tooling, jigs and fixtures — designing bespoke tooling to achieve tolerances, throughput or geometries existing equipment can't.
• New materials and treatments — trialling alloys, composites, coatings or heat treatments where behaviour under real conditions is unknown.
• Automation and Industry 4.0 — integrating robotics, sensors or control systems where the integration itself creates uncertainty (not simply installing off-the-shelf kit).
• Scale-up — moving a product or process from prototype or pilot line to full production, where the scale-up introduces new engineering problems.

What doesn't qualify

Knowing where HMRC pushes back matters just as much:

• Routine production engineering applying existing techniques with a predictable result.
• Cosmetic or styling changes with no technological advance.
• Installing standard equipment or configuring it in the normal way.
• Routine quality control and testing that isn't resolving a technological uncertainty.
• Work after the uncertainty is resolved — once the process reliably works, the remaining production is not R&D.

Which costs you can claim

For a qualifying project, you claim an apportioned share of these cost categories:

• Staff costs — gross salary, employer's NIC and pension for engineers, technicians, process and production staff doing or directly supporting the R&D. Usually the largest part of a manufacturing claim.
• Subcontractors and externally provided workers — where you contract out qualifying work or use agency staff, under the current merged-scheme subcontracting rules.
• Consumables — materials, components and utilities (power, water, fuel, gas) actually consumed or transformed in the R&D, including materials used to build and test prototypes.
• Software used directly in the R&D (CAD/CAE, simulation), apportioned where also used for non-R&D work.

The prototype-sold trap. Materials consumed building a prototype to resolve a technical uncertainty can qualify — but if you then sell that prototype as a finished product, the consumable cost may be restricted, because it wasn't ultimately "consumed" in the R&D. This is one of the most common manufacturing claim errors; see our note on prototype eligibility.

How relief is calculated

For accounting periods beginning on or after 1 April 2024, most companies claim under the merged R&D scheme: a 20% above-the-line expenditure credit on qualifying costs (taxable, so the net benefit is lower after Corporation Tax).

Loss-making, R&D-intensive SMEs get a better deal under the Enhanced R&D Intensive Scheme (ERIS): if qualifying R&D is at least 30% of total relevant expenditure (CIRD123000), you can claim a more generous payable credit. A manufacturer investing heavily in a new process or product line can tip into that bracket, so it's worth checking your intensity ratio before defaulting to the merged scheme.

The same principles apply across sectors — see our companion guide to R&D tax relief for engineering firms.

Making a manufacturing claim that survives HMRC

With HMRC checking around one in five R&D claims, evidence is everything:

1. Identify the uncertainty, not the project. Name the specific technological problem your competent professionals couldn't readily solve, and the advance sought — not the whole product launch.
2. Keep contemporaneous records — design iterations, trial and test logs, scrap and failure data, and timesheets linking staff to the R&D.
3. Complete the Additional Information Form. Every claim needs a completed AIF with a technical narrative and cost breakdown, filed before or with your CT600.
4. Reconcile your figures across the AIF, technical narrative and tax return — mismatches are a leading enquiry trigger.

A real manufacturing example

Zest helped Genuine Jay Jays make a substantial claim for innovative manufacturing techniques — a worked illustration of how process and product development on the factory floor translates into a robust R&D claim. See the full Jay Jays manufacturing case study.

Frequently Asked Questions

Do manufacturing companies qualify for R&D tax relief?

Yes — manufacturing is one of the largest claiming sectors, around a quarter of all UK R&D claims. The work must seek an advance in science or technology by resolving technological uncertainty a competent professional couldn't readily overcome, such as new products, processes, tooling or materials. Routine production doesn't qualify.

Does process improvement qualify for R&D tax relief?

It can. Developing a manufacturing process that's more precise, faster, less wasteful or more repeatable qualifies where the outcome was genuinely uncertain and required systematic investigation — not where you're applying a known method. Process innovation is one of the most commonly missed qualifying areas in manufacturing. For a high-precision example, see our aerospace-sector R&D guide.

Can I claim for prototype costs?

Materials consumed building a prototype to resolve a technical uncertainty can usually be claimed. But if the prototype is later sold as a finished product, the consumable cost may be restricted because it wasn't ultimately consumed in the R&D — this needs careful treatment.

Which scheme applies to manufacturers now?

For accounting periods beginning on or after 1 April 2024, most companies use the merged R&D scheme (a 20% expenditure credit). Loss-making manufacturers whose R&D is at least 30% of total expenditure may instead claim the more generous ERIS.