Engineering R&D Tax Relief
Claims & Tax Credits for UK Engineering Firms
Professional R&D tax relief claims for engineering companies. Supporting software, civil, mechanical, and electrical engineering projects nationwide.
When can engineering work qualify?
The starting point is the scientific or technological advance being sought. It must be an advance in the overall knowledge or capability of the relevant field, not simply something new to the company.
The company must identify the scientific or technological uncertainties encountered and explain why their resolution was not readily available or deducible to a competent professional. Qualifying activities directly contribute to resolving those uncertainties, together with certain qualifying indirect activities.
A commercially unsuccessful or abandoned project can still contain qualifying R&D. Success is not the test. The purpose of the work, the state of knowledge when it began and the method used to address the uncertainty are what matter.
Projects that may contain qualifying R&D
These examples indicate where qualifying work can arise. They do not mean that every project of that type qualifies, or that every activity and cost within a qualifying project is eligible.
Mechanical design and machine development
Developing equipment whose behaviour could not be reliably predicted from existing designs, where performance had to be established through analysis, prototyping and testing. Designing a machine to a customer specification using established mechanical principles is engineering design, not R&D, however bespoke the outcome.
Thermal, fluid and hydraulic systems
Work on steam, heat transfer, refrigeration, hydraulic or pneumatic systems where the required stability, efficiency or performance could not be achieved from established design practice, and the behaviour of the system was genuinely uncertain in advance. Sizing and specifying a system using standard calculation methods does not qualify.
Control systems, instrumentation and embedded software
Developing control, protection or firmware where timing, reliability, resolution or behaviour under noisy, variable or safety-critical conditions could not be guaranteed by known approaches. Configuring a PLC, integrating an off-the-shelf controller, or writing software using established methods is routine implementation.
Electrical power systems and power electronics
Projects addressing voltage or frequency stability, fault tolerance, thermal limits, efficiency or electromagnetic compatibility where the solution was not deducible from existing design rules. Applying known protection and distribution design to a new installation is standard electrical engineering.
Automation and robotics integration
Work where the sensing, gripping, tolerance handling or control required exceeded what available technology could deliver, and a technological solution had to be developed rather than selected. Specifying, installing, programming and commissioning a robot cell for an application it was designed to handle is procurement and integration.
Structural and civil engineering
Developing structural, foundation or temporary works solutions where the combination of ground conditions, loading, geometry or materials fell outside what established codes and analysis methods cover, and the technical route had to be investigated. Design carried out within established codes, however complex the structure, does not qualify.
Materials, tooling and manufacturing methods
Developing tooling, joining methods, forming processes or material applications where the behaviour under the required conditions could not be predicted and had to be resolved through trials. Producing one-off tooling by established methods, or qualifying a known process to a standard, is not R&D.
What normally does not qualify?
- Detailed design and drafting carried out within established codes, standards and analysis methods.
- Selecting, specifying, installing and commissioning equipment for the purpose it was designed for.
- Bespoke or one-off engineering delivered using known methods, however demanding the specification or tight the tolerance.
- Adopting a technique, material, tool or system that is established in the field but new to your business.
- Routine testing, inspection, certification, qualification and validation.
- Regulatory, planning, safety-case and compliance work undertaken to satisfy a requirement rather than resolve a technological uncertainty.
- Cost reduction, buildability and programme problem solving where the technical route was already known.
- Commissioning, snagging, fault finding and maintenance once the uncertainty has been resolved.
Technical difficulty, engineering skill, client pressure, project value and the failure of a project do not, on their own, establish eligibility. Regulatory pressure does not create technological uncertainty, and a project that failed may have failed for commercial or resourcing reasons rather than technical ones.
What evidence supports a claim?
Evidence should show what was known at the start, what advance was sought and why the technical route was not readily deducible. Useful contemporaneous evidence can include:
- Design requirements and the technical baseline.
- The identity and relevant experience of competent professionals.
- Technical risk registers, calculations and modelling.
- Test plans, prototypes and trial results.
- Records of failed or rejected approaches.
- Design revisions and engineering change records.
- Contracts, scopes of work and client specifications, which determine who is entitled to claim.
- Meeting notes and technical correspondence.
- Project accounting, time records and cost-apportionment methods.
The absence of a particular document does not automatically prevent a claim, but the company must provide a coherent, supportable explanation of the work and costs.
Which costs may be included?
The rules for contractors, externally provided workers and overseas activity require particular care. Eligibility depends on the accounting period, contractual arrangements, who decided to undertake the R&D and where the work took place.
Production and distribution costs, capital expenditure, land and the cost of patents or trademarks are not qualifying R&D expenditure under these reliefs.
Test rigs, jigs, fixtures and equipment are capital expenditure and fall outside these reliefs, although Research and Development Allowances may be available on capital spend used for R&D and should be reviewed separately.
See the qualifying R&D costs guideR&D Tax Relief Calculator
Fill in the boxes, your estimate updates as you type.
For financial periods starting on or after 1 April 2024
Tell us about your business
Enter your best estimate of spend on qualifying R&D activity. This is not your total development, engineering or project budget.
Qualifying spend covers only the staff time, contracted-out R&D, externally provided workers, consumables, software, data licence and cloud costs attributable to work that sought a scientific or technological advance. Most companies overestimate this figure before a technical review, so treat whatever this produces as an upper bound rather than a target.
For periods beginning on or after 1 April 2024, overseas contracted-out R&D and externally provided worker costs are generally restricted. Limited exceptions apply where necessary conditions cannot reasonably be replicated in the UK; lower costs or overseas worker availability alone are not enough.
How Lexmore helps
1. Assess the technical position
We speak with the people who understand the work and test each project against the tax definition of R&D. If we do not believe the work meets the test, we say so before recommending a claim.
2. Establish the evidence
We identify the baseline, advance, uncertainties, competent professionals and supporting records, including any gaps that should be addressed before submission.
3. Review the expenditure
We map costs to qualifying activities, consider the relevant scheme and document the basis of any apportionment and external arrangements.
4. Prepare the claim
We prepare the technical and financial support and the Additional Information Form, then coordinate the Corporation Tax return position with the company or its accountant.
5. Provide enquiry support
If HMRC opens an enquiry, we manage correspondence and defend the technical and financial basis of the claim. We cannot determine HMRC's decision or represent clients at tribunal.
If a claim is reduced or denied, the company may have to repay relief and HMRC may charge interest and, in some circumstances, penalties. Read about R&D enquiry support.
Which R&D scheme applies?
For accounting periods beginning on or after 1 April 2024, qualifying companies generally claim under the merged R&D expenditure credit scheme. Enhanced R&D Intensive Support may instead be available to a qualifying loss-making, R&D-intensive SME.
Earlier periods fall under the previous SME and R&D expenditure credit rules. The accounting period, company position, contracting arrangements and any connected companies must be considered before treatment can be confirmed.
Find out which R&D scheme applies.Could Patent Box also apply?
Engineering firms that develop and commercialise patented technology may also need to consider Patent Box. Where a company owns or exclusively licenses a qualifying patent, has undertaken qualifying development on it, and earns income from exploiting it, an effective 10% Corporation Tax rate can apply to qualifying relevant IP profits.
Three points matter more in engineering than elsewhere. Patent Box applies to relevant IP profits after the required calculation, not to revenue or to the company's total profits, so the benefit is usually a good deal smaller than the headline rate suggests. Where the patent is held by a parent, a customer or a joint venture rather than by the company doing the development, entitlement needs to be established before anything else. And an election is required within a time limit, which is why the position is worth reviewing as a product moves into profit rather than afterwards.
Holding a patent does not qualify a company for Patent Box, and it does not evidence an R&D claim. The two regimes apply different legal tests, and neither proves the other.
Explore Patent Box tax relief.R&D claim deadlines
For a period of account lasting 18 months or less, the claim deadline is generally 24 months from the final day of that period. A different 42-month rule applies where the period of account is longer than 18 months.
Some companies must also submit a claim notification within six months after the end of the period of account. Exemptions and exceptions apply, so previous claims and filing dates must be checked.
See how and when to make an R&D claim.Frequently asked questions
Can an engineering consultancy claim when the work is for a client?
It depends on the contract, not on who did the work. For accounting periods beginning on or after 1 April 2024, entitlement to contracted-out R&D turns in part on which party intended or contemplated that R&D would be undertaken. Where a client specified the outcome and knew R&D would be needed to reach it, the client may be the party entitled to claim. Where the consultancy encountered uncertainty the client never anticipated, the position may be different. This needs reviewing against the actual contract before any cost is included, and it is the question most often missed on engineering claims.
Does bespoke or one-off engineering qualify?
Not by itself. Producing something that has never been made before is common in engineering and is usually design rather than R&D. The question is whether delivering it required an advance in science or technology, and whether the route to that advance was readily deducible by a competent professional in the field. If your engineers knew how to do it and simply had to do it well, that is not R&D.
Can failed prototypes and trials be included?
A project can qualify even if it never achieved the intended advance, but failure is not evidence that the work was R&D. Projects fail for commercial, resourcing and programme reasons as often as technical ones. What matters is that the project genuinely sought a scientific or technological advance, that real uncertainty existed at the outset, and that the records show what was attempted and what was learned.
Can we claim for test rigs, jigs and equipment?
Not as R&D expenditure. R&D tax relief applies to qualifying revenue expenditure such as staff costs, contracted-out R&D, externally provided workers, consumables, software, data and cloud costs. Capital expenditure on equipment, rigs and facilities falls outside it, though Research and Development Allowances may be available on capital spend used for R&D and should be reviewed separately. Consumable materials used or transformed during R&D can qualify, but materials incorporated into something that is subsequently sold generally cannot.
Who counts as a competent professional on our projects?
Someone with relevant qualifications and hands-on experience in the specific field, who can explain what was known before the project started and why the solution was not readily available to someone with that expertise. It is not automatically the most senior person, the project manager or a director. Identifying the right person early is important, because if they leave before an enquiry, defending the technical basis of the claim becomes considerably harder.
Discuss your engineering projects
We will help establish which projects meet the R&D definition, what evidence supports them, and whether preparing a claim is appropriate. That includes reviewing your contracts, because on engineering work the question of who is entitled to claim is often less obvious than whether R&D took place.
If we do not believe the work meets the test, we will tell you plainly and before you have committed to anything.