News & Insights - Misconceptions about manufacturing and engineering funding

Misconceptions about manufacturing and engineering funding

With news that one in five eligible engineering companies are missing out on a staggering £10.2 billion of R&D tax relief, it’s clear that better education on unlocking manufacturing and engineering funding is required - something that we’re here to help with.

The UK manufacturing and engineering sectors are thriving, contributing ​£1.3 trillion​ and ​£1.2 trillion​ to the economy, respectively. Research and development is playing a pivotal role in this success, unlocking technical advances that boost performance, attract investment and deliver a competitive advantage; something that the UK Government wants to encourage.

Through several government-backed industry strategies and sector deals, significant pots of money are available to engineering and manufacturing companies in the UK. These include schemes such as R&D Tax Credits, Innovate UK Smart Grants, Women in Innovation funding and other similar programmes.

However, many businesses aren’t taking advantage. According to the latest ​HMRC figures​, while SMEs make up the majority of claimants, large companies are claiming the majority of funding. This is problematic.

It suggests that SME engineering and manufacturing companies either aren’t aware of the funding available or aren’t claiming for the full range of eligible projects and expenditure. To help avoid this situation, we’ve compiled our top five tips for unlocking manufacturing and engineering funding, while combating some commonly held misconceptions.

Top tips for unlocking funding for manufacturing and engineering

1. Know what’s out there

 Misconception: There’s a small pot of money for a small number of manufacturing and engineering companies – we don’t stand a chance.  

It’s easy to believe that there’s limited funding for R&D in manufacturing and engineering businesses when you don’t know what’s out there. As mentioned, the UK Government is keen to continue advancing the UK’s engineering and manufacturing sectors through a variety of industry strategies and sector deals.

For example, the ​Construction Sector Deal​ aims to contribute to the Government’s target to raise total research and development investment to 2.4% of GDP by 2027 and invest £725 million in Industrial Strategy Challenge funded programmes to help.

Other available grants and funding include:

2. Assume that you qualify

Misconception: Work carried out in a factory or a field doesn’t qualify for R&D tax credits or innovation grants.  

Research and development tax and grants have been wrongly associated with scientific labs and white coats. This assumption leads many to incorrectly assume that  engineering and manufacturing work doesn’t qualify – but it does.

As long as you’re a limited company in the UK, subject to Corporation Tax, and you’re carrying out and investing in research and development activities, then you’ll likely qualify. Find out more about which activities qualify.

Take a look at ​5th Dimension Tooling Ltd​, for example. This specialist engineering company designs and manufactures a variety of tools for sectors including aerospace and automotive. Not only do their research and development projects qualify for R&D tax relief, but they also use the money to invest in additional equipment and new business services.

3. Assess all of your projects

Misconception: New, old, failed or grant-funded projects don’t qualify for additional funding. 

Many businesses who are aware of the manufacturing and engineering funding available, still miss out on eligible funds because they wrongly assume that certain projects or activities don’t qualify. This is especially common for failed, old and grant-funded research and development projects.

However, it’s important to remember that funding aims to encourage innovation. Therefore, as long as you’re making a technological advancement, your activities could qualify for research and development tax relief or other funding – regardless of whether the project was successful or profit-generating.

Low-carbon technology specialist Productiv, for example, qualifies for R&D tax credits through projects that create new processes to assist their application development. Other manufacturing and engineering activities that qualify for R&D funding include:

  • Enhancing old processes to improve efficiency, quality or performance
  • Overcoming unplanned technical difficulties
  • Creating bespoke solutions for clients
  • Routine testing to confirm an uncertainty or advancement

4. Understand eligible and non-eligible costs

Misconception: You can’t claim the costs for employees or subcontracted work, so there’s little point in applying. 

Knowledge, talent and expertise are all central to many engineering and manufacturing research and development projects, but this doesn’t disqualify associated expenses for funding. In fact, the use of employees and subcontractors is actively encouraged through schemes such as research and development tax relief that covers employee and subcontractor costs.

Knowing the expenses that you can and cannot include in a claim ensures that you unlock the maximum amount of funding available. This knowledge also ensures that you’re not submitting an erroneous application; reducing the time it takes HMRC to review your claim.

Key costs that can be included (but are often overlooked) in your research and development tax credit calculation include:

  • Direct staff costs
  • Software
  • Consumables
  • Subcontracted research and development

5. Apply

Misconception: It takes too much time and money to submit a claim for funding – time and money that could be better spent elsewhere. 

The final key to unlocking engineering and manufacturing funding is applying. If you’ve unlocked the previous steps to funding by knowing what’s available, assuming you qualify and identifying eligible projects and expenses for relief, don’t fall at the final hurdle by failing to apply.

Yes, an application for R&D tax credits for engineering or other funding takes time, but that doesn’t have to involve your time. By working with an engineering or manufacturing R&D tax specialist, you reduce the time you need to spend applying for funding. You also reduce the associated costs by involving someone who can prepare your application quickly and correctly to reduce the risk HMRC enquiry in the future.

The ultimate key to success is partnering with someone who understands your industry and can help you release the funds you need to engineer your next innovation. To find out more about how we can help with engineering and manufacturing R&D claims, contact us today.