R&D Tax for Materials Manufacturing and Fabrication

11th June 2020

HMRC statistics indicate that 3,375 companies in the Materials Manufacturing and Fabrications industries made R&D Tax Credit claims worth over £185m for the 2017-2018 financial year.

The statistics above show that the average claim for a company within this industry is nearly £55,000! These funds are paid back to the company as cash or as a Corporation Tax reduction.

As of 2018, there were over 42,600 companies in the materials and fabrication sector, of which, only 8% applied for R&D Tax Relief. This means that up to 92% of companies (that could potentially make a claim), have not!

Eligible R&D Activities

The advantage for companies in this sector, is that research and development is often a core activity, making a wide range of activities eligible for R&D Tax Relief.

The eligible R&D activities are not limited to, but include:

  • Development of a new material, glass formulation, ceramic, composite, rubber compound, polymer, or alloy
  • Developing a novel, bespoke or alternative material processing method
  • Developing new manufacturing, assembly, and fabrication methods
  • Developing new components
  • Developing new hardware/software for a specific purpose
  • Developing bespoke hardware and software systems

To go into a bit more detail:

Many of the activities described above require prototypes to be developed and tested before the final product is arrived at. In many cases, the cost of prototypes, if they are not sold, can be included in the claim. This is because they can be counted as consumable or transformable materials – prototypes are consumed by the development of the final product. Up to £0.33 for every £1.00 spent on eligible prototype costs can be recouped as part of an R&D Tax claim.

Researching, developing and refining a formulation usually has significant costs, some of which can be included in the R&D Tax claim. Examples include the purchase of materials, the cost of lab or factory (scale up) batches and subsequent internal or external testing. On top of this, the additional labour costs associated with factory trials can often be claimed, along with the labour costs of the core R&D staff. As with prototypes, the costs can only be claimed if the trial batches are not sold.

Developing novel and bespoke software solutions requires a significant amount of expertise, which is often not available internally. Costs associated with subcontracted software developers can be claimed under the SME scheme if they completed R&D under your guidance to deliver a solution. Qualifying subcontractor costs can be included at 65% of the cost to the business, which can make up a significant part of the claim. You can find a guide on eligible software development activities here.

Get in Touch

During this difficult time, receiving a cash injection or R&D Tax relief from a successful claim could be a lifeline for many companies in the industry.

Additionally, the turnaround time for a response from HMRC is not as long as you may think – in March 2020, HMRC were processing and responding to tax claims with a turnaround time of just 28 days from submission.

Using Swift R&D for your R&D Tax Credit claim is a simple and easy way to build robust technical and financial documents, that are ready to submit to HMRC. Find out more here.

You can calculate how much your claim could be worth by using our online R&D Tax Calculator.

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Chris Stuttle