How to claim R&D tax relief in the industrial machinery sector

The industrial machinery sector is one of the biggest drivers of innovation and accounted for 8.6 per cent of the UK’s economic output in 2024.

Manufacturers are responsible for nearly a quarter of all UK R&D claims and industrial machinery companies are continuously benefiting from R&D tax relief.

For many manufacturers, the right claim can significantly reduce costs and fund further investments in machinery and technology thanks to the tax relief and credits available.

With the merged R&D scheme now in place, understanding whether you are eligible to claim is as important as ever.

Who is eligible for R&D tax relief?

From April 2024, the UK introduced a merged R&D tax scheme and any UK-registered limited company producing qualified R&D may be eligible.

Under the merged scheme, most businesses can receive a 20 per cent credit rate on the qualifying expenses, with an effective benefit of 15 – 16.2 per cent after tax.

Some SMEs may still access a higher level of support under the R&D Intensive Support (ERIS) if they spend 30 per cent of their total costs on R&D. This provides a 27 per cent cash credit.

To qualify for R&D, your project must aim to achieve scientific or technical advances and tackle uncertainties that an industry expert cannot easily resolve.

For some manufacturers, combining R&D relief with capital allowances, such as Full Expensing or the Annual Investment Allowance, can significantly reduce tax on machinery investments.

How to claim R&D tax relief?

If it is your first time claiming R&D tax relief, you should notify HM Revenue and Customs (HMRC) by submitting your Advanced Notification Form (ANF) within six months of the end of the financial year.

Following this, you will have two years after your year-end to make an R&D tax relief claim, although it is best practice to submit the claim within your original Corporation Tax submission.

Businesses must prepare a technical report that identifies the scientific or technical uncertainties and the baseline knowledge and industry limitations.

The qualifying costs should also be identified and linked directly to the eligible R&D activities.

The claim should be submitted with the supporting documents through your Corporation Tax return.

Industrial machinery manufacturers can often claim for:

• Engineers’ and technicians’ salaries
• Prototype materials and consumables
• Subcontracted engineering or specialist testing
• Software, cloud computing and data costs
• Utilities directly used in R&D
• Externally Provided Workers (EPW) costs

Why is it important to seek financial advice?

For many businesses, R&D tax claims can be overwhelming, but it is an important resource that allows critical funding into manufacturing innovation.

HMRC’s 2025 standards require careful documentation of engineering projects, subcontracted work and integrated systems.

Our specialist R&D tax consultants can help you identify eligible activities and ensure compliance with the new merged scheme and UK-only subcontracting restrictions.

With regard to the subcontracting restrictions, you should note that in some niche cases where work must be conducted outside of the UK to ensure the project’s success, you may be exempt from this rule.

This is only true if geographical conditions, or other factors, require work to be done overseas and seeking cheaper labour is not a valid reason.

With our support, we can help you create a structured claim and support you through any HMRC queries.

Need help preparing your R&D claim? Contact our specialist R&D consultants today for expert advice and support.

Adam Bointon