R&D funding for Advanced Manufacturing

Advanced manufacturing companies regularly solve problems that cannot be addressed using established production methods. The work may involve an unfamiliar material, an unstable process, a difficult tolerance, a new robotic system or the challenge of moving from a successful prototype to repeatable production.

Some of this work may qualify for UK R&D tax relief. The deciding factor is not whether the finished product is commercially innovative. The project must seek an advance in science or technology and involve uncertainty that a competent professional could not readily resolve.

Advanced-manufacturing businesses may also be able to access sector-specific grants for digital adoption, collaborative R&D, advanced materials, aerospace, batteries, automotive manufacturing and industrial scale-up.

This guide focuses on where those opportunities arise in manufacturing, and where routine engineering, production or equipment investment falls outside the scope.

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Advanced manufacturing at a glance

The UK Advanced Manufacturing Sector Plan identifies advanced materials, aerospace, agri-tech, automotive, batteries and space as six frontier industries. Its ambition is to increase annual business investment in advanced manufacturing from approximately £21 billion to £39 billion by 2035.

Manufacturing accounted for 26% of R&D tax claims and 26% of the total relief claimed in HMRC’s latest published industry analysis. HMRC notes that a claimant’s registered industry code does not always represent the sector in which its R&D was performed.

What is advanced manufacturing?

Advanced manufacturing combines engineering, scientific knowledge, production technology and digital systems to improve how physical products are designed, made, inspected or maintained.

It can include advanced materials, precision machining, additive manufacturing, robotics, automation, machine vision, batteries, power electronics, digital twins, industrial artificial intelligence, sustainable production, specialist tooling and manufacturing scale-up.

R&D tax relief follows the activity, not the sector label. A conventional manufacturer may carry out qualifying R&D, while a highly automated factory may undertake no qualifying R&D during a particular period.

Which advanced-manufacturing projects may qualify for R&D tax relief?

A manufacturing project may qualify where it seeks to extend scientific or technological capability and requires structured work to resolve uncertainty over whether, or how, the intended result can be achieved.

The advance must relate to overall capability in a field, rather than merely something that is new to the company. The uncertainty must also go beyond routine engineering judgement. A competent professional should not be able to resolve it readily from public knowledge or established practice.

These examples are indicators rather than an automatic eligibility list. The technical baseline, competent-professional assessment and actual experimental work determine whether a project qualifies.

Where qualifying manufacturing R&D is often missed

Scaling a process beyond the prototype

A working prototype does not prove that the method can be manufactured reliably.

New uncertainty can emerge when increasing batch size, production speed or component dimensions. Heat distribution, cure behaviour, fluid flow, material deformation, tool wear and process interactions may all behave differently at production scale.

Work to resolve those problems can be qualifying R&D even where the underlying product concept has already been demonstrated.

Experiments on a live production line

R&D does not have to occur in a laboratory.

A manufacturer may need to use production equipment because the uncertainty only appears at operational speed, load, temperature or volume. The experimental element of a live-line trial may qualify where it is directed at resolving the uncertainty.

Routine production before or after that experimental work should remain outside the claim.

Failed builds, trial batches and experimental scrap

Failed approaches can be valuable evidence that the result was not readily deducible.

Trial batches, test pieces, failed prints and scrapped components may show which variables were investigated and why further work was necessary. The existence of scrap does not automatically establish R&D, but structured records of the hypothesis, variables, results and technical conclusions can support the claim.

Integrating equipment that was not designed to work together

Buying a machine is not R&D. However, qualifying work may arise where the manufacturer must develop new control logic, sensing, handling, safety or data architecture because the available systems cannot meet the required operating conditions.

The distinction is between normal systems integration and work that extends technological capability.

Unexpected R&D within a supply contract

A tier supplier or contract manufacturer may encounter an unforeseen technical problem after a customer contract has begun. It may carry out its own R&D to overcome that problem even where the customer did not originally intend or contemplate that work.

Who can claim depends on the contract and the surrounding circumstances, so the entitlement should not be assumed.

Which manufacturing activities normally do not qualify?

Regulatory or customer requirements may create a demanding technical objective, but compliance with the requirement is not sufficient on its own. The development work must still satisfy the advance-and-uncertainty test.

Manufacturing costs that need particular care

Kene has a separate guide to all qualifying R&D expenditure. For manufacturers, the following issues deserve particular attention.

HMRC requires costs to fall within prescribed categories, relate to qualifying activity and satisfy the relevant payment and tax-deduction conditions.

Related Kene guidance

• Read the full guide to qualifying R&D costs
• Explore R&D capital allowances

Which R&D tax scheme applies?

For accounting periods beginning on or after 1 April 2024, most companies claim through the merged R&D expenditure credit scheme. Certain loss-making, R&D-intensive SMEs may qualify for Enhanced R&D Intensive Support (ERIS).

The detailed rates, calculations, PAYE cap and accounting treatment are covered in Kene’s dedicated scheme resources and should not be repeated in full here.

Read the merged R&D scheme guide

Calculate your potential R&D benefit

Companies should also check their claim-notification position, Additional Information Form requirements and final filing deadline through our dedicated deadline guidance.

Check your R&D tax deadlines

Contract manufacturing and complex supply chains

Advanced-manufacturing projects frequently involve OEMs, tier suppliers, contract manufacturers, automation integrators, testing laboratories and specialist engineering businesses.

Under the current contracted-out R&D rules, the customer may claim qualifying contractor costs where it intended or contemplated R&D of the relevant type when entering into the contract.

A supplier may instead have its own claim where it took the initiative to perform separate R&D that was not intended or contemplated by the customer. It is also possible for the customer and supplier to undertake distinct R&D projects within the same wider commercial arrangement.

The assessment should consider more than the wording “R&D” in a contract. Relevant evidence can include:

• The technical specification
• Statements of work
• Tender and scoping documents
• Change requests
• Project correspondence
• Intellectual-property ownership
• Financial and technical risk
• Autonomy over the approach
• Who expected to exploit the resulting capability

Contract entitlement should be reviewed while agreements and project records are available, not reconstructed after the accounting period.

Read Kene’s guide to contracted-out R&D

Overseas testing and specialist manufacturing facilities

Manufacturers may use overseas wind tunnels, climatic environments, proving grounds, test houses, pilot plants or specialist equipment that is unavailable in the UK.

Current rules generally restrict overseas contractor and externally provided worker costs. A limited exception can apply where conditions necessary for the R&D are present overseas, are absent from the UK and would be wholly unreasonable for the company to replicate here.

Lower cost or easier access to workers is not sufficient by itself. Each overseas activity must be assessed separately.

The company should document:

• What work was undertaken overseas
• Where it was physically performed
• Which necessary condition existed there
• Which UK alternatives were considered
• Why replication in the UK would have been wholly unreasonable

Read Kene’s overseas R&D cost guide

Which grants are relevant to advanced manufacturing?

Advanced-manufacturing funding is often organised around a technology, supply chain, location or stage of industrialisation rather than the broad label “manufacturing grant”.

The most relevant route depends on whether the business is developing a technology, adopting one, collaborating with a research organisation or investing in manufacturing capacity.

Made Smarter Adoption provides advice, transformation road maps, training and grant support to smaller manufacturers in England. The wider government programme has committed £116 million to support 5,500 SMEs.

DRIVE35 is backed by £4 billion through 2035 and includes routes supporting zero-emission vehicle R&D and manufacturing facilities. Aerospace Technology Institute programmes support UK civil-aerospace technology, including digital design and advanced manufacturing.

The National Materials Innovation Programme runs from 2026 to 2030 and focuses on translating advanced-materials research into industrial use. Knowledge Transfer Partnerships support collaborations between businesses and eligible knowledge-base organisations, while the High Value Manufacturing Catapult provides specialist industrialisation capability across materials, additive manufacturing, composites, biomanufacturing, digital production and other areas.

What makes a strong manufacturing funding case?

A manufacturing grant application needs to show more than an interesting technology.

It should explain:

• The current production or supply-chain limitation
• The technical risk that remains
• The project’s manufacturing-readiness position
• The trials, equipment and facilities required
• Expected improvements in yield, throughput, quality, cost or sustainability
• The route through validation, certification and commercial production
• Why the project will create value in the UK
• How the company will finance its contribution and subsequent scale-up

A grant application for a new material, for example, should address how it will be processed, qualified, supplied and incorporated into products, not stop at laboratory performance.

Current advanced-manufacturing grants

Patent Box for advanced manufacturing companies

Patent Box can be particularly relevant to manufacturers whose competitive advantage sits in a patented product, component, material, production tool or process.

The regime can apply an effective 10% Corporation Tax rate to relevant profits from qualifying patented inventions. It does not apply automatically to total company profit or gross product revenue. The company must hold qualifying rights, satisfy the development condition and identify the relevant intellectual-property profit.

For manufacturers, the practical opportunity can arise where:

• A qualifying patented component is incorporated into a wider product
• A patent protects a specialist material or formulation
• A patented tool enables the manufacture of a product range
• A patented production process contributes to manufacturing income
• The company licenses its manufacturing technology to another party

Where a qualifying patented process generates value without producing direct patent income, a notional-royalty approach may sometimes be available.

The Patent Box calculation separates qualifying IP profits from routine manufacturing and marketing returns and applies an R&D fraction that links the benefit to the underlying development activity. Companies therefore need more than a copy of the patent.

A useful manufacturing data map connects:

Patent → component or process → product or product family → revenue and costs → underlying R&D expenditure

This is often easier to establish through product codes, bills of materials and product-family reporting while the technology is being commercialised than several years later.

Manufacturers should consider Patent Box before a patent is granted. HMRC permits elections during a patent-pending period, and certain pre-grant profits may be brought into the calculation once the right is granted, subject to the relevant conditions and deadlines.

Read Kene’s complete Patent Box guide

Speak to a Patent Box specialist

Advanced-manufacturing legislation to keep in mind

Regulation frequently shapes the technical objective, test programme and route to market for manufactured products.

The Supply of Machinery (Safety) Regulations 2008 remain central to machinery placed on the Great Britain market. The 2026 amendment regulations take effect on 20 January 2027 and address the changing Northern Ireland machinery framework.

Strategic export controls can apply to physical goods and to software, technical data and assistance. Exporting controlled items without the required licence is a criminal offence.

The UK Carbon Border Adjustment Mechanism begins on 1 January 2027 and initially covers specified imports from the aluminium, cement, fertiliser, hydrogen, iron and steel sectors.

Meeting a regulatory requirement does not itself make work R&D. Qualifying activity may arise where achieving that requirement creates a genuine scientific or technological uncertainty that cannot be resolved through established methods.

This is a high-level regulatory overview rather than legal, product-safety, environmental or export-control advice.

Worked example: automated inspection of precision components

A manufacturer produced precision components containing complex internal channels. Existing inspection methods could not identify certain internal defects without destroying the part, while available automated systems generated too many false results at the required production speed.

Advance sought

The company sought to develop a reliable, non-destructive, in-line inspection system combining specialist imaging, automated handling and defect-classification software.

Technological uncertainties

The engineering team could not readily determine:

• Whether the defects could be detected through the component geometry
• Which imaging configuration would provide sufficient resolution
• How vibration and production speed would affect the result
• Whether acceptable variation could be distinguished from genuine defects
• Whether the complete system could operate within the line’s cycle time

Work undertaken

The team modelled imaging configurations, built experimental fixtures, produced reference parts containing controlled defects, collected test data, modified the classification method and trialled different sensor and motion-control arrangements.

Several configurations failed because they produced unacceptable false-positive or false-negative rates.

Potentially qualifying costs

These could include relevant engineering and technician time, experimental components, materials consumed during trials, directly used software and eligible specialist testing.

Costs outside the claim

The claim would exclude routine inspection after the uncertainty was resolved, customer demonstrations, ordinary installation work and the capital purchase price of the final production equipment.

The evidence should show the starting capability, variables tested, failed approaches, technical conclusions and point at which the system became functionally reliable.

Manufacturing R&D in practice: Augustus Martin

Augustus Martin had previously prepared its R&D claims internally but was uncertain whether the legislation had been applied correctly and whether all relevant expenditure had been captured.

Kene reviewed the company’s technical activity and costs. The resulting benefit more than doubled to £500,000. The company intended to reinvest the funding in digital tools supporting its concept-to-store production processes.

Read the Augustus Martin client story

How Kene supports advanced manufacturers

A credible manufacturing claim must connect what happened on the factory floor with the tax calculation.

Kene works with engineering, production, quality, procurement and finance teams to:

• Identify the projects containing genuine technological uncertainty
• Separate experimental work from routine production
• Establish the technical baseline and competent-professional position
• Review trial materials, staff time, software and supplier expenditure
• Assess contract-manufacturing and overseas-cost entitlement
• Build technical and financial evidence from existing manufacturing records
• Identify relevant grant programmes and Patent Box opportunities

The result is a coherent funding position rather than three disconnected exercises covering grants, R&D tax relief and intellectual property.

Check your R&D eligibility

Search current manufacturing grants

Explore Patent Box

Frequently asked questions

Does installing a robot qualify for R&D tax relief?

Not by itself. Qualifying R&D may arise where available robotic systems cannot meet the required conditions and the company must develop new gripping, sensing, control, vision or safety-integration capability.

Can manufacturing scale-up qualify?

Yes. Scaling from laboratory or prototype production may introduce new uncertainty involving heat transfer, material behaviour, tooling, process stability, yield or repeatability. Simply buying larger equipment and following an established method would not normally qualify.

Can production-line trials form part of a claim?

Potentially. A live-line trial may qualify where it is necessary to resolve a defined scientific or technological uncertainty. Routine production and validation after the uncertainty has been resolved should be excluded.

Can experimental materials and scrapped components qualify?

Materials consumed or transformed during qualifying R&D may be relevant. Materials incorporated into products that are sold or transferred to customers are generally excluded from the consumables category.

Can a contract manufacturer claim R&D tax relief?

Possibly. The assessment depends on whether the customer intended or contemplated R&D of that type and whether the manufacturer initiated separate R&D while fulfilling the contract. Contracts and surrounding circumstances should be reviewed.

Can overseas testing qualify?

Overseas contractor costs are generally restricted. A limited exception may apply where a necessary condition exists overseas, is absent from the UK and would be wholly unreasonable for the company to replicate here. Cost and worker availability are not sufficient reasons by themselves.

Which grants are available to advanced manufacturers?

Relevant routes can include Made Smarter, DRIVE35, Aerospace Technology Institute programmes, the National Materials Innovation Programme, Knowledge Transfer Partnerships and regional or devolved funding. Live eligibility and deadlines can be checked through Kene’s Grant Finder.

Can a patented manufacturing process qualify for Patent Box?

Potentially. A patented process that contributes to manufacturing income may be considered through the Patent Box rules, including a possible notional-royalty calculation. The company must still satisfy the qualifying-right, development, profit and evidence conditions.