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R&D Tax Credits for Aerospace Companies

Developing lighter structures, more efficient propulsion or more reliable flight systems can mean working beyond established engineering solutions. Aerospace companies may qualify for R&D tax relief where a project seeks a scientific or technological advance and tackles uncertainty that a competent professional could not readily resolve.

InnoFund helps aerospace businesses identify qualifying work, assess eligible costs and prepare an evidence-led R&D Tax Credit claim.

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Sector innovation

Innovation in aerospace

Aerospace development brings together aerodynamics, materials science, electronics, software and precision engineering. Improving one part of a system can introduce new challenges elsewhere: reducing structural weight may affect fatigue performance, while increasing electrical power can create difficult thermal-management problems. Qualifying R&D can sit within a component, production process or subsystem, as well as a complete aircraft or spacecraft.

The claim should explain the technical problem and the work undertaken to solve it. Businesses working across civil aviation and military programmes can also explore our Defence R&D Tax Credits guidance. Where the challenge concerns production methods or repeatability, our Manufacturing R&D Tax Credits page covers related activity.

Aircraft structures and components
Advanced composites and alloys
Propulsion and thermal management
Avionics and flight-control software
Precision and additive manufacturing
Aerodynamic modelling and testing
Uncrewed aircraft systems
Satellite and spacecraft technology

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Qualifying R&D

How aerospace companies can qualify for R&D Tax Credits

Aerospace projects must meet the same eligibility test as other sectors. The advance must extend knowledge or capability in the relevant field, rather than simply introduce something new to your business. These examples show where qualifying uncertainties may arise.

Lightweight structures and advanced materials
Developing composite structures, alloys, coatings or joining methods may involve uncertainty about fatigue life, damage tolerance, thermal behaviour or repeatable performance. A team may need experimental trials to establish how a lighter bonded assembly can withstand combined loads when established methods cannot reliably predict its behaviour.
Propulsion, electrification and thermal management
Work on propulsion components, electric drive systems, batteries or heat-management methods may qualify where the required performance cannot be achieved through established techniques. The uncertainty might concern cooling under changing loads, power density, material compatibility or interactions between a new propulsion architecture and its control systems.
Avionics, control systems and embedded software
Qualifying work may arise when developing sensing, navigation, flight-control or embedded computing systems. A project could investigate dependable sensor fusion, predictable real-time behaviour or fault tolerance within demanding power and weight limits. Installing proven avionics or configuring existing software is not sufficient on its own.
Precision and additive manufacturing
Aerospace suppliers may undertake R&D when developing machining, forming, joining or additive processes with uncertain results. Examples include controlling distortion in thin-walled components, achieving consistent properties in printed alloys, or developing inspection methods for complex geometries. Standard production and routine process tuning should be separated.
Aerodynamics, simulation and experimental testing
Developing a new modelling or test method may qualify where existing tools cannot adequately predict aerodynamic, thermal or structural behaviour. Simulation, wind-tunnel work and prototype testing can also contribute to resolving a qualifying project's uncertainties. Using established analysis software for ordinary design verification does not automatically qualify.
Spacecraft, satellites and uncrewed systems
Projects may encounter uncertainty in deployment mechanisms, lightweight structures, autonomous control or electronics operating under demanding environmental conditions. The claim should identify the specific technological advance and experimental work. Building a satellite, drone or space component is not itself proof that the activity qualifies.

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Specialist support

Aerospace R&D claims need clear technical boundaries

A complex aerospace programme can contain substantial routine engineering alongside qualifying R&D. A useful claim explains what existing knowledge could achieve, why that was insufficient, and what the development team did to address the remaining uncertainty.

Design reviews, prototype changes, test results and the reasoning of experienced technical staff can help establish those boundaries. The financial assessment then needs to follow the qualifying work, including a careful review of customer contracts, outsourced development and costs connected with overseas activity.

InnoFund brings technical and tax considerations together to help aerospace businesses prepare a clear, supported claim.

Simba Mareverwa

Head of Tax Compliance & HMRC Disputes

20+ years in corporation tax compliance, including leadership of HMRC disputes.
Extensive experience defending UK R&D Tax Credit claims under enquiry.
Patent Box claim and enquiry experience dating from the scheme’s introduction.

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“Would highly recommend, they know their stuff! They assisted greatly with an R&D claim rejection by HMRC.”

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Clear boundaries

Not every aerospace project qualifies for R&D Tax Credits

High technical standards, certification requirements and demanding customers do not automatically make a project eligible. Work that applies established methods without resolving scientific or technological uncertainty will generally fall outside qualifying R&D.

Examples include:

Standard component manufacture
Routine aircraft maintenance and repair
Established overhaul procedures
Ordinary design customisation
Replicating known technology
Routine quality-control inspections
Standard software implementation
Procurement and bid preparation
Certification of already-proven functionality
Production after technical uncertainty is resolved

Where a wider programme contains qualifying development, the claim must distinguish that work from routine delivery.

Eligible expenditure

Eligible R&D costs for aerospace businesses

Depending on the work and the applicable rules, eligible expenditure may include:

The qualifying share of engineers', scientists' and developers' employment costs
Related employer National Insurance and pension contributions
Eligible externally provided workers
Qualifying payments for contracted-out R&D
Software used in qualifying development
Eligible data licences and cloud computing used directly in R&D
Materials and components consumed or transformed in qualifying experiments
Fuel, power and other consumables attributable to R&D

Costs must be allocated to qualifying activities on a supportable basis. Materials incorporated into products sold or transferred in the ordinary course of business are subject to restrictions. Equipment purchases, rent and patent costs are not ordinary qualifying expenditure under these R&D relief schemes.

Testing invoices are not a standalone eligible category: treatment depends on what was purchased, the contractual arrangement and the applicable cost rules. See HMRC's guidance on qualifying R&D costs.

Evidence & scrutiny

HMRC risk areas for aerospace R&D claims

A clear aerospace claim connects each claimed activity with the advance sought and the scientific or technological uncertainty being addressed. Particular areas to review include:

Treating certification or safety requirements as evidence of R&D by themselves
Describing an ambitious product without explaining the technological advance
Including entire development programmes rather than qualifying activities
Claiming routine production, inspection or maintenance
Weak evidence for staff-time allocations
Incorrect treatment of customer-funded or contracted-out work
Including ineligible prototype or production materials
Assuming all overseas engineering or testing costs qualify

For accounting periods beginning on or after 1 April 2024, the contracted-out R&D rules require close attention to who intended or contemplated the R&D when the contract was entered into. Exceptions and transitional rules can affect the result. Customer funding alone does not determine who can claim; HMRC's contracted-out R&D guidance explains the framework.

Restrictions also apply to certain overseas contractor and externally provided worker costs. Limited exceptions can apply where necessary conditions cannot reasonably be replicated in the UK; lower costs or the availability of workers do not, by themselves, satisfy that exception.

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Can aerospace suppliers claim R&D Tax Credits?

Potentially. A company within the charge to UK Corporation Tax may qualify whether it develops complete systems or supplies individual components, software or manufacturing processes. The relevant work must seek an advance in science or technology and address qualifying uncertainty. Supplying the aerospace industry does not automatically establish eligibility.

Can we claim for customer-funded or grant-funded aerospace development?

Possibly. Under the merged scheme, receiving a grant does not automatically exclude qualifying expenditure. Customer contracts require a separate assessment: who intended or contemplated the R&D, what was agreed, and the surrounding circumstances can determine entitlement. The accounting period and any applicable exceptions also matter.

Does airworthiness or certification testing count as R&D?

Not automatically. Testing that helps resolve a qualifying technological uncertainty may form part of R&D. Routine testing to demonstrate compliance once the functionality is technically established generally does not. Keep the experimental development work distinct from the wider certification process.

Can unsuccessful aerospace projects qualify?

Yes. A qualifying project does not have to achieve its intended advance. Abandoned approaches, failed prototypes and inconclusive trials can still form part of eligible R&D where they represent planned work to resolve the relevant uncertainty. Only qualifying activities and eligible costs should be included, in line with the government guidelines on the meaning of R&D.

What evidence should an aerospace company retain?

Useful records include the technical baseline, development objectives, design reviews, simulation outputs, prototype changes and test results. Retain the relevant competent professional's explanation of the uncertainties and evidence supporting cost allocations. Contracts and invoices help establish the treatment of outsourced work. Claim notification may be needed, and the additional information form must be submitted before the Company Tax Return containing the claim.

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Discuss your aerospace R&D project

Developing an aerospace component, process or system and unsure where the qualifying work begins? Talk to InnoFund about your technical challenges, project evidence and potential R&D tax relief.

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Innovation in aerospace

Aerospace R&D claims need clear technical boundaries

Eligible R&D costs for aerospace businesses

HMRC risk areas for aerospace R&D claims

Patent Box & Knowledge Development Box

Capital Allowances & Land Relief

HMRC & Revenue Support

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