Contents
R&D work in the automotive industry is essential for improving vehicle performance, enhancing sustainability and fuel efficiency, and making vehicles safer for drivers and other road users.
Companies in the automotive industry invest substantial funds into R&D work, so R&D tax credits are a vital relief for businesses.
Depending on the nature of the R&D work, you could recoup thousands of pounds for your automotive clients.
However, sometimes it is unclear whether automotive R&D qualifies for tax relief or not, particularly because the scheme uses multiple, complex eligibility criteria.
This may lead to your automotive clients submitting ineligible claims – or, even worse, failing to submit claims for qualifying R&D projects.
The distinctions between qualifying and non-qualifying R&D expenditure are often small and nuanced.
At randd uk, our expert R&D tax consultants are here to help you help your automotive clients with their R&D tax claims.
Who could benefit from R&D tax relief in the automotive industry?
A range of clients in the automotive industry could benefit from automotive R&D tax credits.
These include OEMs (Original Equipment Manufacturers), fabricators, motorsport companies, automotive software companies, and tyre manufacturing and management companies.
Many automotive companies subcontract a portion of their R&D work to third parties. For example, a motorsport company may subcontract the production of a specific software to a software developer.
Although your client can claim tax relief on subcontractor costs, eligibility depends on who bore the financial and technical risk of the project, rather than who commissioned it.
In the example above, you would need to determine whether the motorsport company (the commissioner) or the software developer (the subcontractor) bore the risk of the project and would, therefore, be eligible for R&D tax relief on the related costs.
What qualifies for R&D tax credits in the automotive industry?
To qualify for R&D tax credits, a project must be innovative and contribute to the overall knowledge of a particular subject area by:
- Seeking an advance in a specific field of science or technology.
- Overcoming or trying to overcome a scientific or technical uncertainty via methodical experimentation.
- Contributing knowledge not already held or easily worked out by another expert in the field.
The project cannot solve an issue that only affects your client’s operations or just apply an existing solution in a new context.
However, contrary to popular belief, a project does not have to be successful in order to qualify for R&D tax relief.
This is because the scheme is designed to reward genuine innovation and research, whether or not it is ultimately successful.
Projects that could qualify for R&D tax relief include:
- Designing new types of motors, such as axial flux motors.
- Improving the life of electric vehicle batteries.
- Vehicle-to-grid (V2G) technology research.
- Creating and trialling improved safety systems, including airbags and seat belts.
- Developing more energy-efficient lighting technology.
- Making more durable and corrosion-resistant materials and coatings.
- Innovating alternative, cleaner fuel sources and their supporting technologies.
- Developing and testing new autonomous vehicles, sensors, and electronics.
Our specialist R&D tax consultants can help you determine whether your client’s project qualifies for R&D tax relief.
Which costs are eligible for R&D tax relief?
Automotive businesses can claim certain costs incurred in R&D work as qualifying expenditure. These include:
- Staff directly involved with the project (including their salaries, Class 1 National Insurance contributions and pension contributions).
- Administrative or support staff (e.g. specialist cleaning staff) who work to directly support a project.
- Subcontractors and external workers.
- Consumable materials (including light, heat and power).
- Data licensing and cloud computing costs.
- Software licence fees.
However, not all costs are eligible.
For example, the creation of patents and trademarks, distribution costs, and money spent on fixed assets (such as land and buildings) do not count as qualifying expenditure for R&D.
How to claim R&D tax credits for automotive businesses
Accountants claiming R&D tax credits for their automotive clients need to make sure they have clear records detailing the progress of R&D work, the specific costs incurred, key dates, and the results of any project (whether successful or not).
Automotive companies and their accountants often run into difficulties when it comes to R&D tax relief claims.
At randd uk, we can help you to take your R&D tax offering to the next level.
With our experience and expertise in the automotive industry, we’ll provide you with bespoke advice that translates to successful claims for your automotive clients.
We’ve successfully recouped thousands of pounds in tax relief for automotive businesses, so you can trust us to handle your claims with care.
For further advice on claiming R&D tax credits in the automotive industry, contact our specialist R&D tax consultants today.
Sign up to our Newsletter
Stay ahead with the latest R&D tax insights, funding updates, and innovation trends — straight to your inbox.
