R&D Tax Relief in the Automotive Industry

From an R&D perspective, the automotive industry is a rich and diverse field, covering original equipment manufacturers together with the various tiers of their respective supply chains.

Published/updated:

09 November 2022

Engine
Introduced by the UK Government in 2000, the R&D tax relief scheme is designed to encourage innovation and global competitiveness by allowing companies to reclaim some of the money invested in qualifying research and development. R&D tax credits are generally considered to be one of the most attractive tax reliefs available, often resulting in significant cash repayments from HMRC.

What are the benefits?

The benefits of the programme include increased cashflow, which is especially important to innovative, developing companies. It also encourages development of a corporate philosophy that embraces innovation and improvement.

Do you qualify?

A common misconception is that the scheme is just for companies with R&D departments and men in white coats. The fact is that any company that spends money trying to improve a product or service
through a technological advance, using qualified staff and appropriate project controls, and where there’s doubt about the project’s success, is likely to be eligible.

R&D in Automotive

From an R&D perspective, the automotive industry is a rich and diverse field, covering original equipment manufacturers (‘OEM’s such as Ford and Vauxhall) together with the various tiers of their respective supply chains. OEMs tend to design and develop the overall vehicle, with the individual components usually developed by Tier 1 suppliers, who in turn source the components they need from Tier 2 supplies, and so on. R&D tends to be distributed throughout the supply chain. OEMs will usually have plenty of R&D of their own, but a huge amount will also be carried out by the Tier 1 and 2 suppliers. In many ways, OEM’s today are not so much car builders as they are systems integrators, taking other companies’ technologies and assembling them into a whole vehicle.

"While working with ABGI, we identified eligible expenditure that we would have otherwise excluded without the help of their technical experts. The tax benefit we received has massively
helped our business, and we can now continue our development of electric vehicle solutions." - Kevin Wells, Head of Strategic Finance, Lotus Cars Limited

What are the potential areas of eligibility?

A vast range of activity, which could include:

  • Automation of driving, e.g. adaptive cruise control, auto braking, auto parallel parking.
  • Sensors and other technologies – infra-red, cameras, GPS etc.
  • Using new materials to reduce the weight or increase the rigidity of chassis.
  • Engine controls and efficiency.
  • Emissions controls.
  • Alternative fuels (bio-fuels, fuel cells).
  • Batteries (for hybrid or electric vehicles) – capacity and safety.
  • Attempts to increase the percentage of a car that can be easily recycled.
  • Corrosion protection.
  • New safety tech (lithium batteries and hydrogen can be dangerous – new safety features required?).

"Our accountants introduced us to ABGI. From their first presentation, it was clear that we should be claiming the thousands of pounds available under this government scheme. We could not believe this applied to us and it was only thanks to their in depth examination of our company, we realised the possibilities.

The understanding achieved by their analysts of our processes really was significant; few professional bodies we have encountered had their level of engineering expertise, thus giving us the confidence to move forward with a claim."  Jon Pitt, Financial Director, L.M.G Solutions

What problems might a company face?

  • Diminishing returns: as engines have become cleaner and more efficient, ever harder to appreciably increase efficiency, cleanliness and performance
  • Extremely high reliability required for automated control systems
  • Low battery storage capacity per unit of weight
  • Uncertain how extremes of weather will affect complex, interdependent mechatronic systems

Eligibility questionnaire

If you can answer ‘Yes’ to most of these questions then, based on our experience across thousands of clients, it looks like you could have a successful claim:

  • Have you developed new tools, products or services using technology?
  • Have you tried to improve your existing products through technical changes?
  • Have you had to resolve technical problems with any of your products?
  • Have you found more efficient ways to produce your products or services?
  • Have you experimented with new equipment or production techniques?
  • At the start of a project, did you ever think ‘I’m not sure of the best way to do this’?
  • Have any of your projects failed for technical reasons?

Why ABGI?

ABGI is a leading international tax incentive and innovation management advisor. We help companies accelerate their innovation activity by identifying and securing appropriate funding in the form of grants, tax incentives or commercial funding. With 30+ years heritage and 200 experts, we manage +£870million of innovation incentives annually across 19 countries, for some of the world's best known brands. Whatever innovation funding challenges you face – wherever you’re based – we can help.

"ABGI immediately showed good technical understanding of our products and business. Of course the best thing about working with ABGI is that they got money back for us that we would never have got round to applying for. Give it a try – no win, no lose!" - Fiona Scott Thomson, Owner, Scottoiler

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