How R&D tax credits can help manufacturers to remain competitive

An increasing number of small and large businesses are acknowledging the benefits of research and development (R&D) tax credits, with the ability to claim precious financial aid from the UK government in exchange for investing time and resource into solving challenges at every stage of a business.Between the scheme’s launch in 2000 and 2013, over £9.5 billion was claimed in R&D tax relief and payable credits. More and more business have become aware of their ability to make a claim, and therefore that figure has soared in recent years.In the manufacturing industry, it is especially important for companies to adopt a flexible approach to adapting existing processes and improving operational efficiencies. They may therefore even need to trial working with new or improved materials to take their finished product(s) to the next level and remain competitive in the marketplace.That’s where R&D tax relief comes in. If your business is in the manufacturing sector and you’ve recently introduced new or improved products or internal processes, or you are thinking of doing so soon, there is a strong possibility that you could be eligible to claim for R&D tax credits. Therefore, it's important to be aware of your eligibility, and what it can mean for your business going forward.

There are two types of R&D tax relief available to small and large manufacturers

• SME R&D Relief

Manufacturing companies with fewer than 500 staff, and with a turnover of less than €100m are prime candidates for this. It also includes companies of a similar size, but with a balance sheet of less than €86m. Businesses can remove 130% of all R&D costs incurred from their annual profits, as well as the usual 100% deduction. Manufacturing SMEs can also claim R&D relief if it is loss-making, worth up to 14.5% of any surrenderable loss.

• Research and Development Expenditure Credit (RDEC)

Large-scale manufacturers with over 500 employed staff can claim RDEC. This relief is also available to firms who are subcontracted to take part in an R&D project on behalf of a large company. RDEC therefore enables large manufacturing companies to claim 11% tax relief on all qualifying R&D costs.

Typical manufacturing projects that qualify for R&D tax relief

• The use of computer-aided design (CAD) software to innovate product development
• The development and manufacture of second (or third) generation products
• The enhancement of existing internal computer models
• The design and development of new tools and equipment
• The task of prototyping and 3-D printing prospective new products
• The evaluation of material usage
• The integration of new materials to enhance products and manufacturing efficiencies
• Testing the suitability of manufactured products
• Evolving internal processes to surpass new regulations
• Implementing machine automation to streamline manufacturing processes