Maximise R&D Tax Credits for Innovation in the Fashion Industry

The fashion world is known for creativity, fast trends, and bold ideas. But behind all the glitz and glamour is a growing need for innovation. If you’re in the fashion industry—whether a small label experimenting with eco-friendly fabrics or a larger company investing in new production processes—there’s a good chance you could be missing out on valuable government support.

Let’s talk about R&D tax credits. They’re not just for tech giants or pharmaceutical firms. They’re also available for clothing brands, textile designers, and fashion manufacturers who are pushing the envelope. In this guide, we’ll break down how you can benefit from them in simple terms, and why it might be a bigger deal than you think.

What Are R&D Tax Credits?

R&D stands for Research and Development. The UK government offers tax credits to companies that are investing time, money, and resources into improving products, processes, or services. These R&D tax credits are a way of helping businesses innovate—whether that’s developing a new type of sustainable material or creating more efficient manufacturing techniques.

Introduced to encourage innovation, these tax reliefs can lead to a reduction in your tax bill or even a cash payout. It’s all part of the UK government’s push to support cutting-edge industries, which you can learn more about on gov.uk.

Why the Fashion Industry Qualifies

You might be wondering, “Fashion? Isn’t that more creative than technical?” Well, not exactly. Scratch beneath the surface, and you’ll find that most fashion businesses are constantly overcoming technical uncertainties. And that’s exactly what qualifies as R&D under HMRC rules.

Here are a few examples of what could be considered R&D activity in fashion:

• Experimenting with new fabrics: Creating materials that are lighter, stronger, or more sustainable.
• Innovating production methods: Making clothes faster or with less waste using novel machinery or processes.
• Developing wearable tech: Fusing technology and clothing, like smart jackets or fitness monitoring gear.
• Improving dyeing techniques: Finding eco-friendly methods that maintain colour quality.

If you’re spending time and money trying to find new solutions in these areas, that effort may be eligible for R&D tax relief.

How Do R&D Tax Credits Work?

Here’s where it gets practical. If your business is doing qualifying R&D work, you could:

• Reduce your Corporation Tax bill.
• Get a cash payment if you’re making a loss.
• Reinvest that money into your next big idea.

The specific benefit depends on factors like your company size and profitability. The two main schemes are:

• SME R&D Relief: For small and medium-sized businesses. You could deduct an extra 86% of your qualifying costs on top of the usual 100% deduction.
• RDEC (Research and Development Expenditure Credit): For larger firms or those getting subsidies. This gives around 20% of your eligible costs back as a taxable credit.

HMRC administers the scheme. They aren’t out to trip you up, but they do have rules. You’ll need to show that your project worked to resolve technical uncertainty, not just create a fashion-forward look. Learn more directly from HMRC here.

What Counts as Qualifying R&D Work?

This is the part where many fashion companies get confused. Let’s use an example:

Imagine a brand is developing a fabric made entirely from ocean plastic. They test various blends, struggle with durability, and tweak their machinery to keep the fabric intact. These experiments take months—and plenty of failed attempts. Guess what? That’s R&D!

To qualify, your work should:

• Be aiming to create something new or improved.
• Involve overcoming scientific or technological uncertainty.
• Require experimentation and problem-solving.

What doesn’t count? Cosmetic design changes, like simply switching colours or styles for next season’s collection, likely won’t make the cut.

Claiming R&D Tax Credits: The Process

Think claiming is too much hassle? It doesn’t have to be. Here’s a short overview of how it works:

1. Identify qualifying projects: Make a list of the activities and costs related to your R&D work.
2. Calculate costs: Include staff time, materials used, software, prototypes, and more.
3. Write a technical report: This explains your project, the problem you were trying to solve, and why it wasn’t straightforward.
4. Submit your claim: You can do this via your Corporate Tax return.

Sounds manageable, right? Often, working with a specialist advisor can help make this process smoother.

Don’t Miss Out – Even Past Projects May Qualify

Did you try something new in the past couple of years? Good news: You can usually claim for R&D work going back up to two financial years. That means if you experimented with a new product line in 2022, it might still be worth submitting a claim now.

Final Thoughts: Fashion Needs Innovation—And Innovation Needs Support

The fashion industry moves fast. And with that speed comes the need for constant innovation. Whether you’re working on sustainable dyes, 3D-printing shoes, or building AI-based supply chains—R&D tax credits can help bring your vision to life.

Let’s be honest, staying ahead in fashion isn’t just about creativity anymore. It’s just as much about technology, research, and problem-solving. UK businesses pushing the envelope should be rewarded—and that’s exactly what these tax credits offer.

So ask yourself: Are you doing something new, improving how you work, or solving tricky problems in your day-to-day operations? If yes, you might just be eligible for a financial boost.

Interested in exploring more? Check out our detailed guide to R&D tax credits or discover how R&D tax relief could benefit your business today.