Successive governments have been desperate for the UK’s manufacturing industry to modernise. Modernisation would offer a huge boost to the UK’s productivity, driving much-needed growth and economic prosperity, but also lead to more efficient, eco-friendly factories, which will be crucial for achieving our net-zero targets.
While more modernisation is needed, manufacturing is still one of the UK’s most important industries. A recent research briefing for the government reported that in late 2024 manufacturing industries accounted for 8.6% off the UK’s total economic output as well as 8.0% of jobs.
The manufacturing industry is also a huge driver of UK innovation. Manufacturers make 24% of all R&D Tax Credits claims, accounting for 22% of the total amount of relief claimed in the UK – that’s according to the government’s Research and Development Tax Credits Statistics report.
Despite the importance of the industry to both the economy and for driving innovation in the UK, growth in terms of the total R&D expenditure within manufacturing has been broadly stagnant for the last five years of reported statistics. In fact, for the 2022-23 financial year, R&D expenditure in manufacturing was still lower than spending in both the 2018-19 and 2019-20:
|
Manufacturing industry R&D expenditure |
|---|
| Financial year | Total expenditure
(£ million) |
|---|
| 2018–19 | 13,070 |
| 2019–20 | 12,520 |
| 2020–21 | 10,975 |
| 2021–22 | 11,890 |
| 2022–23 | 12,165 |
But while R&D expenditure has stagnated in recent years, manufacturers today are well placed to benefit from the relief offered through R&D Tax Credits, as new technologies are set to deliver much-needed advances for the industry.
As an illustration of this, Make UK’s The Future Factories Powered by AI report found that 75% of manufacturers were planning to increase their investment in AI in 2025. The report suggested that artificial intelligence, automation and robotics are collectively set to transform the industry, powering it towards a digital future.
Such innovation is exactly why the government offers R&D relief. R&D Tax Credits make investing in research and development less of a financial gamble, providing a safety net so that companies can confidently explore new ideas and undertake projects that might have otherwise seemed too much of an expensive risk.
As well as taking the risk out of innovation, the financial benefit that comes from R&D relief can be reinvested in other areas of the business, like taking on new employees, expanding facilities, or upgrading manufacturing equipment. The benefit can also be used for further R&D projects, driving even more growth.
How innovation in manufacturing can qualify for R&D Tax Credits
Manufacturers invest in innovation all the time. Whether they simply want to make their operations more efficient, or they’re looking to gain an edge over their competitors. It’s exactly these types of projects that are often eligible for R&D Tax Credits.
Activities that aim to modernise operations, boost productivity, or invent something completely new are very likely to qualify for R&D relief in the UK. Tax credits are available for projects seeking an advance in science or technology, which includes developing new or improving existing processes, devices, materials, products or services.
For manufacturers, common activities like inventing new products and materials, developing more advanced machinery, or finding new ways to reduce their environmental impact, can all potentially qualify for R&D Tax Credits.
And greater digitalisation means greater opportunities for innovation. Launching AI within a business requires a significant amount of data analysis, development and integration work, as well as rigorous testing and validation. Like AI, automation needs development work so that existing systems can communicate with the new automated processes, allowing for data to flow, workflows to link up, and ensuring overall system compatibility. To introduce robotics, engineers will have to design, prototype and test machinery capable of completing very precise tasks – again, this new technology will need to be integrated into existing manufacturing processes. It’s complex work that requires scientific and technical advancements to be developed. And this is why such activities qualify for R&D Tax Credits.
For eligible projects, companies can claim tax relief for a range of their R&D-related costs, including:
- Staff costs
- Software
- Data licence and cloud computing costs
- Contractor payments
- Contributions for independent R&D
- Qualifying indirect activities (e.g., admin related solely to the R&D project)
- Consumable items
- Prototypes
How Leyton UK supports innovative manufacturers
Is your manufacturing business investing in digitisation or other forms of modernisation? We can help.
At Leyton UK, we have a team of consultants who specialise in helping manufacturers claim R&D tax credits. Their deep industry experience allows them to identify eligible activities for claiming relief. Their knowledge of the latest technological advances in manufacturing and their understanding of R&D tax legislation means that you can claim with confidence, knowing that your submission will be robust and compliant. We also know how busy manufacturers are, so we work hard to make claims hassle-free. We’ll help to gather all the needed information for your claim, including preparing your technical report for sign-off and submission.
Get in touch to see how we can help your business claim valuable tax relief.
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