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Preparing Robust R&D Tax Technical Reports - A Simple Guide

R&D tax credits are a great way for companies to fund their innovative work, giving you up to 33% back on your research and development expenditure. Companies are entitled to this cash back if they can prove they meet the requirements of the R&D tax scheme. These credits can also be used to significantly reduce a company's tax liability, giving you more leeway to focus on your customers.

However, proving that your company has a valid claim means you must provide information detailing those activities through the Additional Information Form (a requirement since August 2023). Many claimants will also send a technical report to back up the claim and ensure that all the requirements for making a claim are addressed.

This information is essential for ensuring compliance with HMRC; not having a robust report may lead you to receive a compliance check from HMRC, potentially resulting in a demand to repay your credit or, at worst, a full audit.

The questions of the AIF which are required are as follows:

• What is the main field of science or technology?
• What was the baseline level of science or technology the company planned to advance?
• What advance in that scientific or technological knowledge did the company aim to achieve?
• What were the scientific or technological uncertainties that the company faced?
• How did your project seek to overcome these uncertainties?
• Which tax relief you’re claiming for and the amount?

However, R&D tax advisors recommend that you provide further information, including a brief description of the project’s commercial goals, dates for the R&D project, details of the competent professionals working on the project and their qualifications and a list of the evidence and documentation that is available to prove the activity occurred.

Field of Science or Technology

This field can be relatively short, with a brief sentence to identify the wider domain. For a software project, this may be as broad as “Information Technology”, or more specific like “cybersecurity”, or even more specific like “cryptography”.

Baseline Level of Science or Technology

This should describe the state of the art before your development began. You should have researched the standard approaches and be able to concisely explain the limits of science and technology when it comes to reaching your project goals. For example, in a project where you seek to develop a new pharmaceutical drug, you should explain the existing solutions that treat the disease, their limitations, and what kind of research you did to establish this.

Advance Scientific or Technological Knowledge

Your project must seek to advance the field of science or technology. This can be through developing a new product, process or service or improving an existing one. The important thing is that you advance the field more widely through your development, not just your company’s knowledge.

Having already detailed the baseline knowledge, you should be able to reference how you were trying to improve upon this baseline. For example, developing a drug that can treat a disease in a new way would be eligible, as would improving existing drugs by making them faster to manufacture, cheaper or more effective.

Scientific or Technological Uncertainties

Your project must involve resolving scientific or technological uncertainty. This means that experts in the field did not easily solve the uncertainty. You should have researched the obvious or standard methods and established that they do not work.

You should briefly describe what kinds of difficulties you faced when trying to reach your goal; there may be more than one. You should also explain why it wasn’t obvious how to resolve it. In a project seeking to develop a faster manufacturing process, you may need to explain how the machine operated at its limits with the power source, the hardware used or the wider ecosystem it was a part of.

Experimental Development

The experimental activities conducted to overcome the technical uncertainties must also be explained. You should include information about experiments conducted and their results. This includes brief details of the prototypes, simulations, or trials undertaken. Where these failed, you should explain why and what your modifications were. You should be writing about the development work done as a narrative; there is no need to include exact examples of the work (e.g. do not include code extracts).

The more failures, the better, as this demonstrates that the work done was uncertain and unknown to you. Technical details do not need to be in-depth, but it should be clear to HMRC that you are familiar with the tools and technologies of the trade.

Get the Right Number of Reports

If you have multiple projects, it’s important to know how many projects you need to write up, not only to meet the scheme's requirements but also to avoid spending time writing up unnecessary projects!

Claims within one, two or three projects must be written up in full.

With more than three projects, you must write up at least three of them that cover 50% of the costs you’re claiming. If you have many projects, you can write up the ten largest.

Involve Multidisciplinary Teams

Engage a team with diverse expertise, including technical specialists and tax professionals. Everyone in the process should be largely aware of the technical and tax requirements for making a valid claim. This streamlines the work done and ensures everyone sings from the same hymn sheet.

Maintain Ongoing Documentation

Maintain continuous documentation throughout the project lifecycle to avoid the rush of compiling information weeks before the deadline. Starting the claim as early as possible or maintaining clear notes during the period saves you from trying to remember the details of the work done nearly three years later.

The deadline to make an R&D tax claim is two years after the accounting period ends. For example, for an accounting period ending 31^st December 2023, the company can submit its claim until 31^st December 2025.

Focus on Clarity and Precision

Ensure that the report is clear and concise, as the report will be reviewed by tax officials who are not experts in your field.

Many claimants focus on describing a project's commercial novelty. However, HMRC is not interested in the market, your competitors, or your customers; it only wants to see that you have improved upon the state of the art through the resolution of scientific or technological uncertainty.

Seek Professional Advice

Consult with R&D tax credit specialists and advisors, such as Tax Cloud, who can provide expert guidance and help navigate the complexities of the claim process. Their experience can be invaluable in preparing a robust report and avoiding common pitfalls.

Preparing robust R&D tax technical reports is critical for companies looking to leverage tax incentives for their innovative projects. By understanding the requirements, maintaining detailed documentation, and following best practices, businesses can maximise their claims and avoid time-consuming and potentially costly compliance checks.

Benefiting from expert guidance through portals such as Tax Cloud is essential to navigating these strategies effectively, ensuring you save the maximum amount.

If you have questions, contact us, or dive deeper into the world of R&D tax credits with our comprehensive FAQs blog – check it out here! 🔍