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Automotive

R&D Tax Credits for the Automotive Industry

Find out how you can claim tax relief which could be worth thousands of pounds for the research and development work carried out by companies in the automotive industry.

What is R&D in the automotive industry?

A major purpose of research and development work in the automotive industry is innovation aimed at making vehicles more sustainable, fuel efficient and safer, or in the advancement of manufacturing processes of vehicle components.

These activities can be carried out by OEMs (original equipment manufacturers), through the tiered supply chain, to service companies.

Depending on the start and end dates of the accounting period being claimed for, companies can recoup a percentage of their expenditure spent on automotive R&D under the SME, RDEC or Merged schemes. See our R&D Explained page for a full guide to which scheme fits your criteria.

A car engine being filled with fuel.

Automotive projects eligible for R&D tax relief

An R&D project must advance a specific field of science and technology and include the overcoming of a scientific or technological uncertainty that has never been achieved by anyone previously and is attempted via methodical experimentation.

If you are unsure whether the work you have conducted will qualify for R&D tax credits, use our Eligibility Checker.

As an indication, the following automotive projects are likely to qualify for R&D tax relief:

  • Advanced driver assistance systems (ADAS) development
  • Aerodynamics and drag reduction research
  • Autonomous vehicle testing and development
  • Battery life improvement for electric vehicles
  • Battery management system (BMS) development
  • Design of new types of motors, such as axial flux motors
  • Development of alternative fuel sources and supporting technologies
  • Development of fuel cell stacks for hydrogen vehicles
  • Development of new engine technologies

 

  • Electric vehicle charging infrastructure research
  • Emissions reduction technology development
  • Energy-efficient lighting technology development
  • Hybrid powertrain development
  • Lightweight composite materials for body and chassis
  • Materials and coatings for corrosion resistance and durability
  • Safety systems development, such as airbags and seat belts
  • Testing and development of vehicle sensors and electronics
  • Vehicle-to-grid (V2G) technology research
Mechanic in overalls is repairing a car engine with tools in a workshop.

What costs can be claimed as R&D tax credits?

  • Wages/salaries
  • Class 1 National Insurance contributions
  • Pension fund contributions
  • Payments to administrative or support staff (e.g. specialist cleaning staff) who work to directly support a project
  • Payments made to subcontractors and external workers
  • Payments made to clinical trial volunteers
  • The cost of materials consumed
  • Light, heat and power costs
  • Data licensing and cloud computing costs
  • Software licence fees
A parked car in front of wind turbines, showcasing the harmony between renewable energy and transportation.

Which costs aren’t eligible for R&D tax relief?

  • Money spent on fixed assets such as land and buildings
  • Costs of machinery and equipment used in production
  • Distribution costs
  • IT costs incurred for day-to-day business requirements
  • Meal and travel expenses paid directly by the company
  • Shareholder dividend payouts
  • Creation of patents and trademarks
A man in a suit refusing a document related to R&D.

Automotive companies we’ve helped with R&D tax credits

We claimed back almost £64,000 in a single-year claim for a Worcestershire company which focuses on the development of automotive vehicle structures and assemblies, particularly for niche and lightweight vehicles.

A Nottinghamshire-based motorsport engineering company, which specialises in providing highly tuned automotive vehicles for serious racing enthusiasts, recouped tax relief of over £21,000 with our help.

Nine years of submitting R&D tax credit claims for a Shropshire-based motorsport engineering company has yielded over £306,000 in total, while a Yorkshire-based turbocharger upgrade specialist received over £36,000 for its first claim.

A company which provides tyre management services for vehicle fleets, such as refuse collection dustcarts belonging to local government contractors, had a successful first claim for £37,000 after joining forces with randd.

Worker in blue overalls working on an automobile.

How to claim R&D tax credits as an automotive business

  • Make sure you have clear records breaking down the specific costs incurred in your R&D projects, including payroll for any permanent staff involved in the R&D work and subcontractor invoices
  • Ensure you also have precise information such as dates of the trialling, when the first uncertainty happened, what that comprised and who was involved
  • Use our R&D tax credit calculator for an indicative idea of how much tax relief your company could be entitled to
  • Contact us to receive advice and help from one of the UK’s leading R&D tax credits specialists – our aim is to make the process as simple as possible
A man working on the engine of a car in a workshop.

Get support claiming automotive R&D tax credits

If you require any advice or help in relation to your automotive R&D tax claim, you simply need to reach out to randd as we can provide any level of support.

Firstly, you can utilise our R&D tax credits calculator to gain an indicative idea of how much tax relief your company could be entitled to.

Then you can call upon our wealth of experience advising clients in the automotive industry, which has claimed back thousands of pounds in tax. Call us on 01332 409711 or email claim@randduk.com and we can support you in understanding whether your research and development activities qualify and how to move forward with your claim.

Automotive R&D tax credit FAQs

The following types of company are amongst those which could benefit from automotive R&D tax credits:

  • OEMs (Original Equipment Manufacturers)
  • Fabricators
  • Motorsport companies
  • Electronics manufacturers
  • Automotive software companies
  • Tyre manufacturers
  • Tyre management companies

Many automotive companies subcontract a portion of their development work – for example the production of a specific component or software – to third parties. Up to 65% of the cost of using a subcontractor is eligible for tax relief.

There are several caveats to this, however. For example, only companies eligible for SME R&D tax relief can claim relief for work subcontracted to another limited business, while eligibility for the scheme depends on who bore the financial and technical risk of the project and not necessarily who commissioned it.

Research and development in the automotive industry can be particularly expensive as companies invest large sums of money to make their products more environmentally friendly.

Therefore, proceeding with an R&D tax credits claim can recoup a proportion of that sizeable outlay, enabling funds to be reinvested into the company’s operations.

One R&D tax credits claim is allowed to be made each year by a company and there is no limit to the amount of tax relief that can be received.

This depends on a variety of factors, namely the dates of the accounting period being claimed for, the size of the company, its financial performance and the scale of its expenditure on research and development. See our detailed explanation of R&D tax credits for more information.

At the end of the accounting period in which an R&D project has taken place, a company has two years in which to submit its tax credits claim. For instance, if the end date of your accounting period each year is March 31, you would need to submit your R&D tax credit claim for the accounting period April 1 2022 to March 31 2023 before midnight on March 31 2025.

If you team up with randd, the process is likely to evolve over a period of around 12 weeks, starting with a pre-qualifying call to determine whether your R&D activity qualifies. Once the claim has been qualified and we have obtained all your R&D costings, we can calculate the value of your claim and submit it to HMRC. You will typically hear back from HMRC within eight to 12 weeks.

R&D Capital Allowances enable companies to claim 100% tax deductions for capital expenditure incurred on development, equipment or facilities used to carry out R&D activities.

By utilising both schemes correctly, you can lower your taxable profits by writing off your fixed assets in the year they were purchased – thereby increasing the surrenderable taxable loss for a cash tax credit.

It may also be possible to win an Innovation UK grant by submitting an innovative breakthrough or game-changing idea through a competitive application process.