Manufacturing Industry UK R&D Tax Credit Expenditure

  • By David Buckley
    • Apr 20, 2023
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The UK’s manufacturing sector continues to be a vital driver of UK innovation, as evidenced by the amount it invests in R&D (spending more than any other industry). Currently 23% of all R&D Tax Credit claims come from manufacturers.

Manufacturing, like other sectors, has faced big challenges following Brexit, including the global pandemic, the war in Ukraine and political turmoil in the UK. Many publications reported that the manufacturing industry was due to contract in 2023. The 2023 publication of HMRC’s R&D Tax Credit Statistics brings some hope, as it reveals there was actually recent growth in R&D expenditure and tax relief claimed by the industry.

As HMRC’s stats show, the landscape of manufacturing innovation is evolving, sometimes inconsistently. While the overall trajectory shows an upward trend in claims, recent years hint at a moderation in growth. By taking a closer look at HMRC’s statistics we’re able to better understand the industry’s struggles as well as put recent growth in context.

Manufacturing R&D Tax Credit claims

According to HMRC’s data, the number of manufacturing R&D Tax Credit claims has been increased YoY, but growth has been inconsistent and has slowed in the most recent tax year.

It’s worth noting that the reported slowdown for the 2021-22 tax year contains estimates so it may not be accurate. Indeed, 2020–21’s figures were later revised upwards by 7%.

But from what’s we can see in the most recent publication, the number of R&D claims from the manufacturing sector increased by 3% in the 2021–22 tax year, with 20,730 claims in total. This breaks down to 17,485 SME scheme[DB1]  claims, 1,565 RDEC claims from large organisations, and 1,735 RDEC claims from SMEs.

The 2020–21’s revised figures, shows 11% year-on-year growth, up from 7% for the 2019-20 tax year but still below the 13% and 14% YoY growth of previous years.

Amount of manufacturing R&D Tax Relief claimed

The amount of R&D relief claimed by the manufacturing sector had been in decline since 2018-19 but the most recent figures show a return to growth, with more cash claimed during the 2021-22 than any other tax period over the last five years.

Generally, it was a good year for most UK industries as the overall amount of R&D relief claimed across all sectors increased by 11%. For manufacturing specifically, it went up by just 7% – suggesting slightly slower growth in R&D relief claimed than other sectors.

While there was growth in the amount of relief claimed by manufacturers through the SME scheme and large organisations through RDEC, the amount of relief claimed through RDEC by SMEs remained the same year-on-year from 2020-21 to 2021-22.

This data suggests that the ramifications of Brexit had a bigger initial impact on the manufacturing sector than the global pandemic.

Manufacturing research and development expenditure

Overall, R&D expenditure increased by 8% across all sectors in the 2021-22 tax year. Again, manufacturing R&D expenditure grew slower than average, by just 5% – from £10,885M in 2020-21 to £11,415M in 2021-22. Thankfully, this ended a downward trend of R&D expenditure in the manufacturing sector, which started in the 2019-20 tax year.

R&D expenditure is a solid indictor of the health of an industry, as it showcases both investment and innovation. While the return to growth is welcome, it still falls beneath manufacturing R&D expenditure in 2018-2019 (£13,070M) and is even below 2017-2018 levels of expenditure (£12,205M). In other words, manufacturing still hasn’t returned to pre-Brexit levels of expenditure.

Where does manufacturing take place in the UK?

HMRC’s R&D stats do not report on specific industry activity by region, however, a 2023 Make UK study examined how manufacturing was spread around the UK. Their study showed the following regional output:

  • North West £28.2B
  • South East: £24.9B
  • West Midlands: £21B
  • Yorkshire: £20.6B
  • East Midlands: £19.4B
  • East: £18.7B
  • South West: £15.8B
  • Scotland: £15.8B
  • Wales: £12B
  • London: £8.9BN
  • North East: £8.5B
  • Northern Ireland: £6.1B

Manufacturing’s contribution to the UK economy

Manufacturing is a major contributor to the UK economy. According to stats from Make UK, the manufacturing sector:

  • employs 2.6 million people in the UK
  • contributes a Gross Value Added (GVA) of £224 billion
  • exports 49% of the UK’s total goods
  • conducts 41% of all UK R&D
  • accounts for 16% of total UK business investment.

The biggest challenges facing the UK Manufacturing sector

According to a recent government briefing paper on Securing Britain’s industrial future, the biggest challenges facing manufacturing industries include:

  • rising energy prices
  • decarbonisation
  • ensuring a sufficient supply of skilled workers.

Fortunately, if you are an energy intensive manufacturer, you may be eligible for Energy Tax Reliefs.

R&D Tax Credits in the manufacturing industry

Manufacturing is huge area for R&D innovation, making it a critical sector for the UK economy, providing employment opportunities, contributing to GDP growth, and driving innovation. R&D Tax Credits can provide a vital lifeline for manufacturers, especially during challenging times.

Do you work on innovative solutions in the manufacturing industry? Your business may be eligible for significant tax relief. Find out more on how we support manufacturers claiming R&D Tax Credits.

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Author

David Buckley

R&D consultant manager

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