The impact of “Industry 4.0” on Research & Development Tax Credits.

Industry 4.0 could open up major opportunities for manufacturing, some of which might qualify for R&D tax relief.

22 September 2017

Keyboard Industry 4.0

Industry 4.0 could open up major opportunities for manufacturing, some of which might qualify for R&D tax relief.

by John Thomson, Innovation Funding Consultant

The term Industry 4.0 refers to a further developmental stage in the organisation and management of the entire value chain process in the manufacturing industry.

Erm, what?

This is also known as the fourth industrial revolution!  The three industrial revolutions of the past were all triggered by technical innovations.  The first came about due to the introduction of water- and steam-powered mechanical manufacturing at the end of the 18th century.  The second was driven by electricity to create mass production, and a cluster of inventions from the late 19th century onwards – including the internal combustion engine. A third revolution began in the 1960s and was based on the introduction of programmable logic controllers (PLC), using electronics and information technology to automate production.

Ok, so how does it work?

Industry 4.0 focuses on the establishment of intelligent products and production processes.  In future manufacturing, factories have to cope with the need of rapid product development, flexible production, as well as complex environments.  With the digital transformation of manufacturing well underway, the only thing needed to drive the next industrial revolution is wider access to exponential technologies, including:

    • The next generation of mobile internet (5G)  – to facilitate the transfer of immense data, supporting up to 100 devices per square meter.


    • Cheap sensors  –  to connect every object to the digital world, laying the bedrock of the Internet of Things.


    • Artificial Intelligence (AI) –  to generate self-learning machines and even robots capable of teaching one another.


    • Supercomputers, big data analysis and cloud computing  – to allow the collection of vast quantities of data to be exploited.


  • Augmented reality, virtual reality and 3D printing – to vastly improve the production process.

Will this have an impact on innovation?

Impressive progress has been made in AI in recent years, driven by exponential increases in computing power and by the availability of vast amounts of data, from software used to discover new drugs, to algorithms used to predict our cultural interests.

Digital fabrication technologies are interacting with the biological world on a daily basis.

Engineers, designers and architects are combining computational design, additive manufacturing (3D printing), materials engineering and synthetic biology to pioneer a symbiosis between microorganisms, humans, the products we consume and even the buildings we inhabit.  The design and testing of ideas is now much easier with these exponential technologies, enabling an accelerated innovation cycle.  Companies are using virtual reality to test out new designs in near real-time, instead of waiting for physical prototypes.

But what does it mean for my SME and my R&D?

The great news is that Industry 4.0 could open up major opportunities for manufacturing.

For example, new ways for companies to integrate their customers’ needs and preferences into their development and production processes, enabling personalisation, customisation and local production. In some cases, it will make it easier to analyse machine data, helping to enhance quality and avoid faults in the production process.

This will be particularly beneficial to SMEs, as they have the potential to build new industry 4.0 processes from scratch.  Large companies, by contrast, have a greater problem of data integration across different business segments.

Keep in mind however, that SMEs seeking to develop, integrate and extend industry 4.0 technology and processes into their business to give them a competitive advantage, face a number of challenges.

  • The first is the cost involved, in terms of both capital investment and the resources required.
  • The second is the technological challenge, and uncertainty, of successfully developing solutions that will benefit the business.

The Good News

R&D tax credits are considered to be one of the most attractive tax reliefs available, often resulting in significant cash repayments from HMRC. If you can demonstrate which of your activities qualify under the scheme, you can open up a new revenue stream to fund further R&D projects and facilitate business growth.

The good news is that majority of the challenges your business will be faced with, in order to extend the knowledge and capability of the industry, will fall within the boundaries of the R&D tax relief scheme, offsetting some of the financial risk posed to innovative SMEs.

For more details and a chat about how this might apply to your own business, contact a member of the ABGI team today.

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