R&D in Manufacturing & Engineering

Key facts

R&D in manufacturing often involves process improvements that resolve genuine technological uncertainty.
New materials, composites, and coatings developed to meet specifications beyond current capabilities can qualify.
Tooling and jig design qualifies when it requires overcoming scientific or technological challenges.
Prototyping, testing to destruction, and pilot production runs can be qualifying indirect activities.
Manufacturing companies can claim for staff, materials consumed, subcontractor costs, and utilities.

R&D in the Manufacturing Sector

Manufacturing and engineering companies are well-suited to R&D tax credits because they regularly push the boundaries of materials science, process engineering, and mechanical design. Yet many manufacturers do not claim because they do not think of their development work as “research.”^[2]

The key is to identify projects where your team faced genuine uncertainty about whether or how something could be achieved. This uncertainty may relate to:

Whether a material can be made to perform beyond its known limits
Whether a process can achieve tighter tolerances, faster cycle times, or lower defect rates than current technology allows
How to integrate new technologies (such as sensors or automation) into an existing production line
Whether a product can be manufactured at the required scale while maintaining quality

Examples of Qualifying Manufacturing R&D

Project Type	Example	Why It Qualifies
New materials	Developing a lightweight composite with specific strength-to-weight ratios for aerospace components	Uncertainty about whether the material can achieve the required mechanical properties
Process innovation	Redesigning a welding process to join dissimilar metals without stress fractures	Known welding techniques cannot reliably join these specific alloys; systematic testing required
Tooling design	Creating a die that can stamp complex 3D shapes in a single press operation at production speed	Uncertainty about whether the die geometry and material selection can withstand the forces involved
Automation	Developing a robotic pick-and-place system for irregularly shaped fragile components	Existing vision systems and gripper designs cannot handle the variation and fragility at the required speed
Surface treatment	Creating a coating process that provides corrosion resistance beyond what existing treatments can achieve	Uncertainty about the chemical formulation and application process needed to meet the specification
Scale-up	Scaling a laboratory process to production volumes while maintaining tolerance and consistency	The physics and chemistry at scale behave differently from the lab; systematic investigation required

What Does Not Qualify

Not all manufacturing development qualifies. The following activities are generally excluded:^[1]

Routine engineering: Designing products using established methods and known materials within their proven capabilities
Standard tooling: Making tools and jigs using standard approaches without technological uncertainty
Cosmetic changes: Altering appearance, packaging, or branding without scientific or technological challenges
Routine quality control: Standard testing, inspection, and measurement
Commercial production: Manufacturing products once the process has been established

The boundary: R&D ends when the technological uncertainty is resolved — typically at the point where the process, product, or material is proven to work at the required specification. Production that follows is not R&D, even if the product is new to market.

Typical Eligible Costs

Manufacturing R&D claims often include a broader mix of cost categories than software claims:^[2]

Cost Category	Manufacturing Examples
Staff costs	Engineers, metallurgists, process technicians, R&D lab staff
Consumable materials	Raw materials for prototypes, test pieces, chemical reagents, components tested to destruction
Subcontractors	External testing laboratories, specialist consultants, university research partnerships
Utilities	Power for furnaces, laser cutters, CNC machines, and test rigs used in R&D
Software	CAD/CAM, FEA simulation, CFD analysis software licences used in R&D

Tip: Consumable materials can be a significant part of a manufacturing R&D claim. Keep records of materials requisitioned specifically for R&D projects, including failed prototypes and test pieces that were scrapped.

Documenting Manufacturing R&D

Good documentation strengthens your claim and helps defend it if HMRC opens an enquiry. Useful evidence for manufacturing R&D includes:

Design drawings and revisions showing iterative development
Test reports and laboratory analysis results
Material specifications and datasheets
Photographs of prototypes, test rigs, and failed components
Project meeting minutes discussing technical challenges
Supplier correspondence about material limitations

Frequently Asked Questions

Does improving an existing manufacturing process qualify?

It can, if the improvement requires resolving genuine scientific or technological uncertainty. For example, reducing waste by 30% when existing methods can only achieve 15% involves uncertainty about whether it is technologically possible. Simply tweaking settings on existing machinery using known parameters would not qualify.

Can we claim for materials used in prototypes?

Yes. Raw materials, components, and other consumables that are used up or transformed during the R&D process qualify. This includes materials used in prototypes that are tested and scrapped, trial production runs designed to resolve uncertainty, and samples tested to destruction.

Does automation qualify as R&D?

Automation can qualify if it involves resolving technological uncertainty. Implementing an off-the-shelf robotic system does not qualify, but developing a bespoke automated process where it is uncertain whether the required precision, speed, or reliability can be achieved may qualify.

What about quality improvement projects?

Routine quality control does not qualify. However, if you are trying to achieve quality standards beyond what current technology can deliver — for example, reducing defect rates below the known capabilities of your manufacturing process — the work to resolve that uncertainty can qualify.

Sources

Guidelines on the meaning of research and development for tax purposes — GOV.UK / DSIT
Corporation Tax: Research and Development (R&D) relief — GOV.UK
CIRD81900 – R&D tax relief: conditions to be met — HMRC