Understanding the role of R&D in the manufacturing industry
6 November 2023
Research and Development (R&D) plays a pivotal role in the manufacturing industry, serving as the engine that drives innovation, technological advancement, and overall progress. That’s why this industry makes up one of the highest proportions of R&D claims. Businesses involved in R&D in manufacturing can receive financial fuel from HMRC if they have explored new materials, experimented with novel techniques, and devised innovative systems, as a few examples. The tax credits foster growth and serve as a catalyst. This article will help determine what is considered R&D in the manufacturing industry and everything businesses need to know about obtaining their R&D benefit from their advancements in manufacturing.
Why are R&D tax credits important for the manufacturing industry?
The primary objective of R&D tax credits is to foster creativity, improve existing methods, and introduce new solutions that enhance efficiency, quality, and competitiveness. Here are three reasons why R&D is important to manufacturing:
1. R&D is providing the solutions to industry challenges
To qualify for R&D tax credits, you need to be making an advancement past a technical uncertainty. This involves challenging the normal way of doing things in manufacturing by daring to be different. By undergoing a trial-and-error phase to carry out your project, your business is innovative by nature. The manufacturing industry has key challenges and it’s up to R&D projects to analyse new ways to combat these problems:
- The net-zero target – The UK’s commitment to achieving a net-zero target by 2050 poses various challenges for the manufacturing industry. Manufacturers are significant contributors to greenhouse gas emissions due to their energy-intensive processes, reliance on fossil fuels, and production-related emissions. Therefore, R&D activities would be looking at new ways to decarbonise everyday processes to reduce the reliance on fossil fuels. This could be an investment into creating low-carbon technology and materials.
- Skills shortages – As the industry becomes more technologically advanced, the demand for workers with specialised skills increases. There’s often a shortage of workers with the necessary expertise in areas like robotics, data analysis, and programming. R&D would be looking at ways to reduce the challenge of skills shortage, perhaps with automation or software that trains these workers efficiently.
- Low productivity – Low productivity can be a significant issue in manufacturing, often due to outdated technology, inefficient processes, or inadequate workforce training. Addressing this requires investment in modern equipment, automation, and ongoing training programs for employees.
- Build Back Better agenda – The government’s “Build Back Better” incentive presents both opportunities and challenges for the manufacturing industry. While it emphasises infrastructure investments, clean energy, and job creation, it also brings increased regulatory standards, shifts in infrastructure priorities, supply chain disruptions, and the need for a transition to sustainable practices. This requires manufacturers to adapt their processes, products, and workforce to comply with new regulations, address changing market demands, invest in green technologies, and navigate potential financial strains.
- Global competition – Intense competition from low-cost manufacturing centres in other countries poses a challenge. Manufacturers in high-wage regions must find ways, through research and development, to compete with lower-cost producers through innovation, superior quality, and efficient processes.
- Supply chain disruptions – Disruptions in the supply chain, whether due to natural disasters, political instability, or global events (like the COVID-19 pandemic), can significantly impact manufacturing operations. Companies need to create resilient supply chains that can adapt to unexpected challenges.
2. R&D is the foundation of the next stage of the industrial revolution
The concept behind R&D tax credits is to offer UK businesses a financial incentive to pursue innovation on projects that contain technical or scientific discovery. Therefore, the knowledge needed to overcome uncertainty shouldn’t be easily understood by a competent professional in the field; there should be trial and error. The more businesses that pursue R&D in manufacturing, the further the industry will undergo digital transformation. R&D tax credits can be thought of as encouragement to UK businesses. Eligible R&D activities are moving manufacturing along on the necessary trajectory, it needs to meet our needs for today and tomorrow.
We are currently in the midst of the fourth industrial revolution, known as Industry 4.0. This is marked by the integration and advancement of disruptive technologies across various sectors. This era is characterized by the convergence of digital, physical, and biological systems, propelled by innovations such as artificial intelligence, the Internet of Things, big data, robotics, 3D printing, and biotechnology. These technologies are radically transforming industries, redefining how we work, communicate, and interact. This idea of redefining is central to R&D eligibility; to make advancements we need to reconsider the very basics of manufacturing and question whether this is really the best way to work.
What we’re seeing from R&D in manufacturing is more streamlined processes, automation, sustainability, and more. The Fourth Industrial Revolution is not just about technological advancements; it’s also about the ways these technologies interact and the societal, economic, and ethical implications they pose, as well as the need to adapt and evolve in response to these rapid changes.
3. The incentive is encouraging businesses to be bolder in their ventures
There is a huge scope of R&D costs that can be claimed as part of an R&D claim. This is vitally useful to manufacturing because it’s a very capital-intensive industry. By allowing businesses to claim on R&D costs, they are speeding up the time it takes to innovate. Businesses feel equipped to take more risks because the R&D incentive even helps those operating at a loss. Businesses can cover their costs of staff (including their pension and National Insurance contributions), for software used during the project, consumables, travel and more.
What does R&D in manufacturing look like?
The manufacturing industry is unbelievably vast with lots of sub-sectors within it such as:
- Developing advanced lightweight materials for vehicle construction to improve fuel efficiency and performance.
- Designing and testing new electric or hybrid vehicle technologies.
- Creating innovative safety features or autonomous driving systems.
- Researching and developing advanced automotive software for improved vehicle performance and safety.
Aerospace and defence manufacturing
- Designing and testing new aircraft components or avionics systems for increased safety and efficiency.
- Developing advanced defence technologies or military equipment to enhance security and defence capabilities.
- Researching and developing propulsion systems or aerospace materials for improved performance and fuel efficiency.
- Innovating advanced satellite communication or navigation systems.
- Developing more efficient and powerful microprocessors or semiconductor components.
- Designing cutting-edge display technologies, such as OLED or quantum dot displays.
- Creating innovative electronic wearables or smart devices with enhanced functionalities.
- Researching and developing more energy-efficient and sustainable manufacturing processes for electronics.
Textile and apparel manufacturing
- Researching and developing new fabrics with improved durability or advanced functionalities (e.g., antimicrobial, moisture-wicking).
- Designing innovative techniques for sustainable and eco-friendly textile production.
- Creating new manufacturing processes for smart textiles or wearable technology.
- Developing advanced techniques for apparel recycling or upcycling.
Metal and machinery manufacturing
- Innovating new machinery or equipment designs for increased efficiency and precision.
- Developing advanced metal fabrication techniques for higher strength and lower weight materials.
- Researching and developing novel alloys or metal treatments to improve durability and performance.
- Creating automated or robotic systems for enhanced manufacturing processes in metalworking.
Food and beverage manufacturing
- Developing new food processing techniques for improved efficiency and quality control.
- Researching and innovating food preservation methods to extend shelf life and maintain nutritional value.
- Designing advanced packaging solutions to reduce waste and improve sustainability.
- Creating new beverage or food products using novel ingredients or processing techniques.
Renewable energy manufacturing
- Designing and developing more efficient solar panel technologies for increased energy output.
- Innovating advanced wind turbine designs for higher energy generation and lower maintenance.
- Researching and developing energy storage solutions or battery technologies for renewable sources.
- Creating more cost-effective manufacturing processes for renewable energy equipment.
Wood and paper manufacturing
- Developing innovative techniques for sustainable forestry and eco-friendly wood processing.
- Designing advanced paper production processes for improved quality and environmental impact.
- Researching and developing bio-based materials for diverse applications.
- Innovating new wood-based products or composite materials for construction and other industries.
These examples highlight the vast array of opportunities that are present by the R&D tax relief incentives.
Who qualifies for R&D in manufacturing?
In the realm of manufacturing, several roles and activities contribute to Research and Development (R&D) eligibility. Here are some key contributors:
- Engineers and designers: Professionals involved in product design, development, and improvement, including mechanical, electrical, software, and materials engineers.
- Scientists and researchers: Individuals engaged in scientific inquiry, experimentation, and technological innovation to develop new materials, products, or processes.
- Technicians: Those involved in testing, analysis, and conducting experiments to support R&D initiatives.
- Managers and project leaders: Individuals responsible for overseeing and coordinating R&D projects, setting goals, managing resources, and guiding teams.
- Quality control and compliance personnel: Professionals working to ensure products meet industry standards and regulatory requirements through R&D efforts.
- Production and operations personnel: Employees involved in implementing new processes or technologies developed through R&D into the manufacturing process.
To summarise, the manufacturing industry is undergoing transformation to achieve increased productivity, efficiency, and sustainability, and this transformation is only made possible by R&D. The R&D claims for manufacturing showcase an indispensable force driving innovation, progress, and competitive advantage. R&D initiatives in manufacturing continually push the boundaries of technological capabilities, fostering groundbreaking discoveries that lay the foundation for a more innovative, adaptable, and sustainable future.
How Alexander Clifford can help?
As your trusted choice for R&D tax credits, our team can take full leadership of each part of your claim, whether you’re claiming for RDEC or for the tax credits applicable to SMEs. In fact, our largest proportion of R&D claims in 2022 came from the manufacturing industry above all others in 2022. This expertise equips us to create confident claims time and time again that leave us with the privilege of delivering the good news to our clients of what R&D benefit is on the way to them. Wondering if your project counts as R&D? Get in touch with us and our team will determine your eligibility with no upfront cost to you.