Materials manufacturing and R&D Tax Credits

A diverse and technology-heavy sector

In 2017-18 alone, HMRC statistics show that 3,375 companies in the materials and fabrications manufacturing industries made a claim for R&D Tax Credits. These claims together were worth more than £185 million - much needed extra funding to support ongoing R&D work.

Right across the UK, average R&D claims can top £55,000 with funds provided either as a reduction in Corporation Tax or as a cash lump sum.

The manufacturing sector as a whole is a big claimer of R&D Tax Credits, but 2018 figures show that only 8% of firms working in materials and fabrication received an award. For such a diverse and technology-heavy sector this sounds way too low.

What’s it all about?

The R&D Tax Credits scheme has been offered by the government since the year 2000. It allows UK companies to claim back a sizeable proportion of their eligible R&D costs back, regardless of size or industry. It’s extremely generous too (read up more on our R&D Tax Credits page) and can make all the difference in these tough economic times.

Fine-tuning a formulation

Researching, developing and refining a formulation doesn’t generally come cheap - but thankfully many of these costs will be covered in an R&D Tax Credits claim. Examples include the purchasing of materials, costs associated with lab or factory (scale up) batches and subsequent testing both internally and externally. Additionally, along with the core labour costs of staff engaging in R&D, any labour costs in relation to factory trials can also typically be reclaimed. This is on the proviso that the trial batches do not get sold on.

Designing prototypes

Creating and testing prototypes involves a large amount of R&D, particularly in materials and fabrications manufacturing. Again, as long the prototypes aren’t sold on, there’s no reason they can’t be included in an R&D Tax Credits claim. This is because they are classed as materials that have been used up in the R&D process, so are consumables.

Devising unique software solutions

Note that we’re not talking about off the shelf software here, but bespoke software solutions created specifically for the R&D work being undertaken. If a subcontractor has developed software then the costs incurred in paying them for the work can also be included.

At Myriad Associates we’ve put together a webpage dedicated to software and R&D Tax Credits which you may find useful. See our Software page.

Other qualifying R&D activities within materials and fabrication manufacturing

Research and development lies at the heart of the manufacturing, with the materials and fabrication part of the sector undertaking a wide range of activities perfect for attracting the relief. We’ve already looked at some of the key ones above, but further eligible activities include:

• Developing a new material, glass formulation, rubber compound, ceramic, polymer, alloy or composite
• Creating a new fabrication method
• Bringing a manufacturing or assembly method online
• Developing a novel, alternative or bespoke material processing method
• Manufacturing new components

Why are so many materials and fabrications manufacturers missing out on valuable R&D Tax Credits?

Despite the R&D Tax Credits scheme offering rich pickings for companies in a range of disciplines, far too many have still made a claim. Unfortunately, even though materials and fabrications manufacturing harbours a wealth of eligible claims opportunities, far too many are still yet to benefit. We’ve found this is usually because businesses:

1. Don’t actually know the scheme exists
2. Simply believe their work is “run-of-the-mill” and not innovative enough to make a claim
3. Worry about the complexity of the claims process
4. Wrongly believe that because the project failed or was abandoned it won’t be eligible
5. Wrongly believe their company isn’t eligible because it made a loss
6. Are concerned about making an inaccurate claim that gets them into trouble with HMRC

Across our two decades in business we’ve made it our mission to stamp out the myths around R&D Tax Credits claims and help companies achieve the tax relief they’re owed. Find out more.

There's Patent Box relief too

The UK’s Patent Box regime is another generous tax incentive that’s only been around since 2013. Essentially, it allows businesses that are making a profit from their patented inventions to claim a reduced Corporation Tax rate on these profits. It often goes hand in hand with R&D Tax Credits.

So that their company’s tax position can be optimised, it’s crucial that manufacturers developing new products or enhancing existing ones thoroughly understand Patent Box rules and what makes them eligible for the relief. Again this is something the Myriad Associates team will be pleased to advise on.

It’s important that all manufacturing companies in the UK assess their research and development plans with R&D tax relief in mind. There may be some planning required to make sure maximum benefit is received, and we will discuss this with you when you get in touch.

The scheme does allow businesses to make reasonable estimates when claiming for the first time, or even the second time. But it’s always much better to record R&D expenditure properly, particularly when it comes to apportioning staff time and overheads to R&D work.

Contact the R&D tax and funding specialists

The rules regarding materials manufacturing projects and how they relate to R&D Tax Credits are often complex and can change at short notice. The Patent Box scheme can also be a minefield, and errors on both fronts are common.

When submitting your R&D Tax Credits claim, mistakes must be avoided at all costs. You can guarantee HMRC will spot them, no matter how innocuous they seem, and any inconsistencies can lead to an expensive, resource-intensive HMRC enquiry. Taking the ‘DIY’ approach to your claim really isn’t worth the risk.

Speak to the R&D tax experts at Myriad Associates today who will take you through your claim step by step. Before you hit submit we’ll give everything a final check over too, so you can rest assured everything will go to plan.

Our 100% success rate speaks volumes, and if there’s any further R&D funding or reliefs you may be entitled to we’ll flag them up with you too.

Send us a message or call us on 0207 118 6045.