What manufacturing projects qualify for R&D tax credits?

The manufacturing sector is consistently one of the largest industries in terms of R&D tax credits claimed. In 2022, it accounted for the second-highest number of claims of any sector and swept the competition in terms of the value of R&D tax claimed (€750m).

R&D is crucial for growth in the manufacturing sector. Remaining competitive in a challenging landscape demands constant innovation.

What is R&D in manufacturing?

Manufacturers may be looking at how to improve their products and processes. Product cost-down exercises without affecting mechanical properties, producing parts faster, more cost-effective, more efficient or more future-proof, to name a few, may be eligible for R&D tax relief. You may be unaware of the R&D being done, as it forms part of continuous improvement.

The key criteria for a qualifying R&D project are:

• Advance in science or technology
• Scientific or technological uncertainty

Your advance needs to improve upon the state of the art more widely, not just your own company’s knowledge. You should be building on the knowledge or capabilities of the field; it’s not enough just to develop new products. You need to go beyond the standard methods in the field to create new opportunities.

You should also be uncertain about if your project is feasible. If you can demonstrate that you experimented to try and find a solution and ran into problems without obvious answers, you likely have scientific or technological uncertainty.

These conditions are intentionally broad, to allow for a large variety of projects to qualify. But what kinds of projects qualify in practice?

Process Improvement

Process improvement projects involve developing or improving production processes to deliver a better outcome, like increasing efficiency, lowering costs, or enhancing quality. Efforts to reduce energy consumption or emissions are particularly common, with the industry-wide move towards more sustainable manufacturing.

Similarly, processes may need to be improved in order to meet new regulatory standards or specifications. For example, a project which seeks to modify the ejector of an injection moulding machine to reduce pressure on thinly moulded pieces may qualify. It uses an existing machine but needs to make an advance in the field to find the correct pressure and component materials to avoid damage to thin pieces while still ejecting them efficiently.

Optimisations and improvements to existing processes are eligible, so long as these improvements demonstrate a genuine advance in the overall state of the art.

Product Development

Companies developing new products, whether they’re built on existing knowledge or entirely groundbreaking, may qualify for R&D tax credits.

Qualifying projects may include designing new products or prototypes, including developing models and conducting iterative testing.

As above, the key requirement is to advance the field’s capabilities and knowledge. Taking known principles and putting them into a new context is not enough on its own; you need to demonstrate that the project creates new knowledge by doing so.

Software Development

The industry claiming the second largest amount of R&D tax credits is the Information & Communication sector, so it makes sense that many qualifying projects are at the intersection of software and manufacturing.

Automation systems or custom ERP or MES systems offer opportunities for R&D in manufacturing. With the increased use of robotics, the manufacturing sector blends with software more than ever.

It’s important to check with the team working on the software, whether in-house or external, to confirm that the work done is genuinely an advance in the state of the art. It’s common to misidentify software projects as qualifying since there are a lot of uncertainties when developing. The team leads need to be clear on what new capabilities were developed in the field that weren’t possible before.

Ineligible activities

Revenue makes it clear that standard technology transfer is not qualifying R&D. Additionally, making improvements through purchasing rights or licenses is not eligible. As a general rule, applying known principles to a new environment won’t qualify.

For more details about the activities and costs you can’t claim, check out our blog here.

Examples of eligible projects

With the above in mind, projects across the whole industry may qualify for R&D tax credits:

• Developing a lightweight, high-strength composite material for the aerospace industry.
• Creating a new, eco-friendly packaging solution for consumer goods.
• Additive manufacturing (3D printing) for custom and complex components.
• Developing or experimenting with new raw materials or composites to enhance product performance.
• Cost-reduction exercises with existing assembly lines.
• Improvements to speed up cycle times.
• Developing digital twin models for real-time simulation and optimisation.
• Creating machine learning algorithms for predictive equipment maintenance.
• Designing smart grids integrated into manufacturing systems.
• Implementing renewable energy solutions for factory operations.
• Smart factories using IoT for real-time data monitoring.

Knowing what projects qualify is half the battle; companies need to know which costs are eligible within these projects too. For more details on this topic, we’ve prepared a guide here.

Questions? Get in touch!

It’s important that companies get their project details clear, or risk spending valuable time and resources defending the claim at a later date.

At Myriad, we have been working on R&D tax claims for over 20 years and we know what’s a qualifying project. We also know how to explain a project to highlight its most innovative aspects. If you’re not sure if your advance is clear enough, or need some support explaining your project in the best way, get in touch with the team at Myriad.