Manufacturing businesses' spending on innovation rises 5% in a year

The data from HM Revenue and Customs (HMRC) is based on claims made for research and development (R&D) tax relief, which incentivises businesses to undertake innovation.

Companies spent £11.4 billion on manufacturing R&D in 2021–22, an increase of 4.9% from £10.9 billion in 2020–21.

The number of R&D tax relief claims made by the sector also rose by 2.7% from 20,180 to 20,730. In total, claims of £1.7 billion in R&D tax relief were made for manufacturing, with an average claim value of £82,971.

The manufacturing industry’s spending growth was lower than UK industry as a whole. Total R&D spending by UK businesses rose by 8% to £44.1 billion in 2021–22. However, the number of first-time claimants has fallen for the second year running.

Nigel Holmes, Director, Research and Development at Ryan, said: “Manufacturing plays a vital role in growing the UK’s economy, so it is good news that innovation spending continues to increase. This coincides with growth in the number of overall claimants for R&D tax relief in the sector, which bodes well for the future.

“However, the number of first-time R&D claimants has fallen overall, suggesting that some companies may be nervous about claiming as a result of HMRC’s recent crackdown on fraud and error.

“While it is important for the credibility and robustness of the scheme that fraud and error are eliminated, HMRC’s approach may be having a chilling effect on businesses. If companies do not feel it is worth claiming because they are nervous about the response from HMRC, they may be deterred from innovation altogether.”