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R&D Tax Credits for Defence Companies

Defence is one of the UK's most research-intensive markets, with innovation taking place across advanced manufacturing, aerospace, cyber security, AI, autonomous systems, communications, sensors, materials, simulation, robotics and mission-critical software. Where your business is developing new technology, improving performance, solving integration challenges or overcoming uncertainty in demanding defence environments, you may be carrying out qualifying R&D. InnoFund helps defence companies identify eligible activity, prepare compliant R&D Tax Credit claims and protect future innovation funding opportunities.

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Sector innovation

Innovation in Defence

Innovation in defence is driven by operational need, national security priorities, complex procurement requirements and fast-changing threat environments. Businesses in the defence supply chain are often asked to develop technologies that must perform reliably in extreme, secure or safety-critical conditions. Qualifying R&D may arise where a company is developing or adapting products, systems, software, materials or processes because existing solutions cannot meet the required technical performance, resilience, interoperability or security standards.

This includes work across:

  • Defence technology
  • Aerospace and systems engineering
  • Cyber security
  • Autonomous systems
  • AI and machine learning
  • Secure communications
  • Sensors and radar
  • Electronic warfare
  • Advanced materials
  • Simulation and digital twins
  • Robotics and unmanned systems
  • Mission-critical software

Defence R&D often sits inside sensitive technical programmes, secure environments and complex supply chains, where the claim needs to explain the science or technology clearly without unnecessary disclosure of sensitive information.

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Defence innovation activity that may qualify for R&D Tax Credits

Qualifying R&D

How Defence Companies Can Qualify for R&D Tax Credits

Defence companies may qualify for R&D Tax Credits where they are seeking an advance in science or technology and have to overcome technical uncertainty. Qualifying activity can arise across platforms, subsystems, cyber security, AI, communications, sensors, materials, simulation and mission-critical software.

  • Advanced Systems and Platform Development Defence R&D may arise where a company is developing or improving platforms, subsystems, components or integrated technologies that need to perform in demanding operational environments. This could include aerospace systems, naval systems, land systems, specialist vehicles, electronics, control systems or mission equipment where existing solutions are technically insufficient.
  • Cyber Security and Secure Communications Projects may qualify where a business is developing new ways to protect, transmit, authenticate, encrypt, monitor or manage sensitive data. Defence cyber and communications projects often involve uncertainty around resilience, latency, interoperability, threat detection, secure networking or performance in contested environments.
  • AI, Autonomy and Decision Support R&D can arise where a company is developing AI, machine learning, autonomous systems or decision-support tools for defence applications. This may include uncertainty around model performance, training data, real-world reliability, explainability, sensor fusion, human oversight, safety assurance or integration with existing systems.
  • Sensors, Radar and Electronic Systems Defence businesses may qualify where they are developing or improving sensor systems, radar, RF hardware, signal processing, electronic warfare, detection systems or monitoring technologies. The R&D often sits in the technical uncertainty around accuracy, interference, range, reliability, power use, miniaturisation or performance in harsh environments.
  • Advanced Materials and Manufacturing Qualifying R&D may include developing new materials, coatings, composites, manufacturing processes or production methods to improve strength, weight, durability, thermal performance, protection, reliability or cost-efficiency. This may be relevant to aerospace, vehicles, protective systems, specialist equipment and defence manufacturing supply chains.
  • Simulation, Testing and Digital Twins Defence projects may involve eligible R&D where companies develop simulation tools, virtual testing environments, digital twins or modelling systems to predict performance, reduce physical testing risk or support mission planning. Routine modelling is unlikely to qualify on its own, but developing new simulation methods or validating uncertain system behaviour may be eligible.
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A note from Simba Mareverwa

Defence R&D Claims Need Technical Depth, Security Awareness and Compliance Discipline

Defence projects often involve high levels of technical complexity, but a strong R&D Tax Credit claim still needs to be precise. HMRC will not accept a claim simply because a project is confidential, defence-related, high-value or strategically important. The claim must explain the scientific or technological advance being sought, the uncertainty faced, and the systematic work carried out to resolve it.

That can be challenging in defence because the most important technical work may sit inside restricted programmes, supply-chain contracts, secure environments or client-funded projects. Businesses may also be working under strict procurement, export control, security, confidentiality or integration requirements. A compliant claim needs to explain enough technical detail to support eligibility while respecting confidentiality and avoiding unnecessary disclosure of sensitive information.

Simba Mareverwa, InnoFund's Head of Compliance and Tax Disputes, helps ensure defence R&D claims are reviewed with compliance at the centre. His focus is making sure claims are built around clear technical evidence, eligible activity, project boundaries, cost treatment and defensible methodology, rather than broad statements about innovation, security or strategic value.

Simba Mareverwa
  • CEDR accredited
  • ICAEW Chartered Accountant
  • R&D Community — Certified in R&D Tax Relief, Gold award (December 2025)

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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Client experience

Defence Companies Recommend InnoFund

Practical support from a multidisciplinary team that understands both the technical work and the claim.

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

Steven Potts

Finance Director, Sigma Polymers

“Excellent from start to finish, lovely team and a great result. Highly recommended.”

Sam Collins

General Manager, Terra Farmer

Clear boundaries

Not Every Defence Project Qualifies for R&D Tax Credits.

Not every defence contract, secure project or strategically important piece of work will qualify for R&D Tax Credits. The key question is whether the business faced scientific or technological uncertainty and carried out systematic work to resolve it.

Examples of work that may not qualify include:

  • Routine defence contracting
  • Standard manufacturing runs
  • Basic product customisation
  • Off-the-shelf software deployment
  • Routine systems integration
  • Standard compliance testing
  • Normal procurement activity
  • General bid writing
  • Routine maintenance or support
  • Commercial project management
  • Work after uncertainty is resolved
  • Replication of known technology

Defence projects often contain a mixture of qualifying and non-qualifying activity. InnoFund helps separate routine delivery from genuine R&D so the claim is accurate, compliant and defensible.

Eligible expenditure

Eligible R&D Costs for Defence Businesses

Defence businesses may be able to claim relief on qualifying costs linked to eligible R&D projects, including:

  • Engineering staff time
  • Software developer time
  • Systems architect time
  • Technical director time
  • Employer NIC and pension costs
  • Subcontracted R&D, where eligible
  • Externally provided workers
  • Software used for modelling or testing
  • Cloud computing and data costs
  • Prototype materials and components
  • Testing and validation costs
  • Consumables used in R&D

The treatment of client-funded work, subcontractors, externally provided workers, prototype materials, secure software environments and technical consultancy can be particularly important in defence R&D claims.

InnoFund helps identify which costs are eligible and ensures the claim is built around the qualifying technical work, not just the wider commercial or strategic project.

Evidence & scrutiny

HMRC Risk Areas for Defence R&D Claims

HMRC is applying greater scrutiny to R&D Tax Credit claims, including complex engineering, software and supply-chain projects. A strong defence claim must explain the technical uncertainty clearly while handling sensitive information carefully and defining project boundaries accurately.

Common risk areas include:

  • Treating defence classification as proof of R&D
  • Weak technical uncertainty explanation
  • No clear baseline of existing knowledge
  • Overclaiming routine contract delivery
  • Incorrect treatment of client-funded work
  • Incorrect subcontractor treatment
  • Poor project boundary definition
  • Insufficient testing or iteration evidence
  • Generic innovation or security language
  • No competent professional input
  • Claiming standard compliance work
  • Sensitive information handled poorly

InnoFund helps defence companies prepare claims that are clear, compliant and evidence-led. We focus on the technical work behind the project, the uncertainty faced, the process followed, the costs directly connected to qualifying activity and the careful treatment of sensitive information.

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Questions, answered

Clear, practical answers to the questions businesses ask most often.

Yes. Defence companies can claim R&D Tax Credits where they are seeking an advance in science or technology and have to overcome technical uncertainty. This may include work involving advanced manufacturing, aerospace, cyber security, sensors, AI, autonomy, robotics, secure communications, simulation, materials or mission-critical software.

Possibly, but this is a key risk area. Defence projects often involve complex contracts, procurement structures, subcontracting arrangements and client-funded development. The contractual position needs to be reviewed carefully to determine whether the work can be claimed, who is entitled to claim, and whether the activity falls under the correct R&D scheme treatment.

Confidentiality does not prevent a project from qualifying, but it also does not prove that R&D exists. The claim still needs to explain the technical advance, uncertainty and development process. InnoFund can help prepare claims that provide enough technical evidence for compliance while avoiding unnecessary disclosure of sensitive information.

Yes. Cyber security projects may qualify where the business is developing new or improved methods to protect systems, detect threats, secure communications, manage identity, improve resilience or respond to complex attack scenarios. Routine deployment of known security tools is unlikely to qualify on its own.

Yes. AI and autonomous systems may qualify where the business is overcoming uncertainty around model performance, real-world reliability, sensor fusion, safety assurance, human oversight, decision support, integration or operation in complex environments. The claim needs to clearly explain the technical uncertainty, not just the commercial use case.

Useful evidence may include technical specifications, design reviews, test plans, simulation outputs, prototype records, software logs, risk registers, integration notes, systems architecture documents, materials testing, trial results, meeting notes and explanations from the competent professionals involved. Sensitive material should be handled carefully and only disclosed where necessary.

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InnoFund adviser discussing R&D Tax Credits with a telecommunications business