‘Manufacturing accounts for two thirds of UK R&D, but a quarter of tax claim value’ claim

Tax relief consultants ForrestBrown say that this is borne out by data published by the Government and manufacturers’ organisation Make UK.

HM Revenue & Customs statistics published in 2021 and updated this year suggests manufacturing comprises between a fifth and a quarter of all tax expenditure on R&D.

Yet, says ForrestBrown, Make UK data suggests manufacturing comprises 64 per cent – almost two thirds – of all R&D activity.

reveals a gap between R&D that manufacturing businesses are carrying out and the tax incentives they could be claiming from HMRC. 

Says the firm: “This highlights a clear mismatch, and that the R&D tax incentive should be working harder for this sector.”  

Direct David Byrne commented that, faced with issues regarding supply chains, net zero and the skills gap, addressing the discrepancy could help fund growth “when the economy needs it the most”.

“Since the manufacturing sector makes up two thirds of all R&D activity in the UK, it follows that we need to ensure that government incentives properly support this sector… it’s clear that the scheme is missing the mark in some areas,” remarked Byrne.

The company has highlighted three key issues it says Government must address in order to boost manufacturing health.

These include current plans to exclude outsourced R&D activity from 2023/24 tax year, which will require such activity to be physically located in the UK to qualify for relief. 

Also, HMRC plans to close any SME claim on R&D carried out in order to supply a specific product to a client. This will penalise firms for commercialising R&D, restricting relief to speculative projects, complains the company. 

Lastly, Government needs to ensure the most generous R&D incentives are not focused on operating to the exclusion of capital expenditure. Offering comparable relief would encourage funding innovation, it asserts.

Byrne added: “A favourable economic environment also encourages investment from outside of the UK. Now is certainly a good time to be boosting that following Brexit and the slow recovery of the sector as a result of the pandemic.”