R&D Tax Relief for Manufacturers

There are two core schemes available in the UK, based on company size and activity:

SME R&D Tax Relief

SMEs (fewer than 500 staff and under €100m turnover) can benefit from enhanced tax deductions. After recent reforms, eligible SMEs can:

• Deduct 186% of qualifying R&D costs from taxable profits
• Surrender losses for a payable credit (up to 14.5% for R&D intensive firms)

R&D Expenditure Credit (RDEC) / Merged Scheme

For large companies or grant-receiving SMEs, the RDEC scheme offers a taxable credit. From April 2024, a merged R&D scheme brings both SME and RDEC rules into one, streamlining access and aligning rates.

Key eligible costs include:

• Staff and externally provided workers
• Software and cloud computing
• Consumables and prototypes
• Subcontracted R&D (limited in scope)

FI Group supports you in identifying qualifying costs, preparing accurate documentation, and submitting compliant claims with minimal HMRC risk.

In addition to tax relief, UK manufacturers can benefit from innovation grants that fund R&D projects. These grants often support:

• Digital manufacturing technologies (e.g. robotics, AI, IoT)
• Sustainable and low-carbon production
• Supply chain innovation
• Additive manufacturing

Key Grant Sources:

• Innovate UK – The UK’s primary innovation agency, offering competitive grants for feasibility, industrial research, and experimental development
• Made Smarter Innovation – Sector-specific support for manufacturing digitalisation
• Net Zero Innovation Portfolio – Government-backed support for clean manufacturing
• Horizon Europe (EU) – Cross-border R&D collaboration (UK companies remain eligible)

Combining Grants and R&D Tax Relief

While grants and tax credits cannot fund the same costs, they can be combined strategically across a project. For example:

• Use grant funding for early-stage feasibility
• Claim R&D tax relief on subsequent development costs not covered by the grant

FI Group offers expert guidance to avoid double funding and optimise your total innovation funding.

Common Projects That Qualify

Examples of manufacturing innovation eligible for support include:

• Developing new machinery or automation systems
• Adapting production for new materials or compliance standards
• Improving throughput, quality control, or sustainability
• Integrating digital twins or real-time analytics

Even if your project failed or didn’t reach market, it may still qualify if it sought to resolve technical challenges.