Specialist R&D Tax & Grant Funding Advisors

Documenting Your R&D Activities: Best Practices for Successful Claims

In this article we discuss how to keep records of your R&D work and what the best ways to do it are. Your report doesn’t just explain the technological advancements you came up with but also describes all the R&D work you did to make those advancements.

Osama Akhlaq

Technical Analyst/Writer

01/11/2023

12 minute read


Technological innovation plays a pivotal role in the long-term economic growth and prosperity of a nation.

To achieve this, investing in research and development (R&D) is not only desirable but also essential.

Recognising the significance of R&D, the United Kingdom’s government has introduced a range of incentives to encourage companies to invest in these endeavours. The advantages of R&D tax credits are manifold and substantial for businesses operating in the UK.

First, these tax credits can lower the amount of money a company has to pay in taxes, and sometimes they can even get some money back, which is like getting a quick cash boost, especially for smaller businesses.

Second, they help companies put more of their money into doing more R&D, which keeps the innovation and growth going. Lastly, going through the process to claim these tax credits can make businesses have more money on hand and be more profitable.

This article is going to talk about how to keep records of the R&D work you do and what the best ways to do it are. It’s really important to have a well-organised technical report about the R&D work you performed if you want to claim these tax credits.

This report doesn’t just explain the technological advancements you came up with but also describes all the R&D work you did to make those advancements. This detailed record has two jobs: it helps the people at HMRC understand what R&D your company did, and it shows them proof that your company is really involved in genuine and innovative research.

Understanding R&D Tax Credits

R&D tax credits are a government incentive that rewards organisations for doing specific research and development activities, which are carefully defined by HMRC (Her Majesty’s Revenue and Customs). To qualify for these tax credits, the innovative work in question must involve a scientific or technological advancement that goes beyond what’s currently available in the market.

It’s important to remember that there’s a time limit for claiming R&D tax credits, which is two years from the end of your accounting period. During this time, you need to submit your claim for any eligible expenses your company had during that period.

To be eligible for R&D tax credits, your projects should contribute to advancing knowledge or capability in the fields of science or technology, rather than just improving your own company’s knowledge or capability. A project can qualify if it falls into one of these categories:

a) It pushes the boundaries of knowledge or capability in a specific field of science or technology.

b) It leads to creating something new (like a process, material, device, product, or service) that represents a big improvement in knowledge or capability in a field of science or technology.

c) It makes a significant improvement in something that already exists (like a process, material, device, product, or service) by using science or technology.

d) It uses science or technology to make something that’s similar to an existing process, material, device, product, or service, but in a new or much better way. For example, it could be a product that works just as well as existing ones but is made using completely different methods.

These rules show that the government wants to encourage real innovation and progress in the fields of science and technology through R&D tax credits.

The Role of a Tech Report

A technical report is a crucial document that provides concrete proof of a company’s research and development (R&D) work, especially when it’s given to HMRC. HMRC’s examination of this report is vital for understanding what R&D projects the company did and, in the end, for deciding if the tax claim is valid. HMRC is in charge of making sure that claimed activities are genuine. If there are any doubts about the R&D work’s validity, HMRC has the job of looking closely at the company and might reject the claim.

So, the technical report plays a crucial role in the R&D tax credit process by giving a detailed explanation of all the parts of the R&D work that was done to make technological advancements. This thorough documentation acts as a bridge of understanding between the company and HMRC, making it easier to check if the project qualifies for tax credits.

Importantly, the technical report doesn’t have to cover every single project the company did. Instead, it should focus on the main projects that make up 50% or more of all the R&D activities during the relevant period. This focused approach makes the documentation process simpler and ensures that the most important and impactful projects get the attention they deserve, which goes along with the idea of being efficient and effective in R&D documentation.

Selecting the Right Projects

To qualify for R&D tax credits, it’s crucial to understand which activities meet the criteria, what expenses are eligible, how to keep accurate records, and how to make an accurate claim. Even experienced business owners can find these aspects challenging.

To be eligible for R&D tax credits, your project needs to match the government’s definition of R&D. This means it should tackle scientific or technological uncertainties with the potential for economic gain. In simple terms, your project must bring about a technological advancement that requires specialised knowledge and isn’t something an expert in the field could easily figure out.

The first step in making an R&D tax claim is to determine if your project qualifies as R&D. In this context, R&D includes any project that tries to advance knowledge in a specific field using a systematic approach based on scientific or technological principles. These projects can be about developing or improving products, processes, or services. For R&D tax credits, your project should clearly show a scientific or technological advancement.

For example, a qualifying project could be like this: “Our project is a pioneering effort to improve the Android Software Development Kit (SDK) for Augmented Reality (AR) applications. We aim to enhance tracking accuracy in AR apps created with the Android SDK. By developing advanced tracking algorithms and refining sensor fusion techniques, our goal is to reduce tracking errors, giving users a precise AR experience.”

Here are some important things to consider when figuring out if your R&D activities are eligible:

  • Scope of Advance: Your advancement should benefit not just your business but the broader field.
  • Scientific or Technological Uncertainty: You need to show that there was a level of uncertainty in the scientific or technological aspects, meaning neither your company nor experts in the field knew how to achieve the advancement.
  • Approach to Uncertainty: Explain how you tackled these unknown scientific or technological challenges through research, testing, and analysis.
  • Expert Involvement: Prove that experts in the field couldn’t easily solve the problem you were addressing. You can do this by showing previous unsuccessful attempts or providing expert opinions from your employees involved in the project.

These considerations give you a strong foundation for figuring out if your R&D projects are eligible, which is essential for successfully claiming R&D tax credits.

Documentation and Record-Keeping

The technical report is a detailed record of all the R&D projects done during the corresponding accounting year. In this report, it’s really important to explain these projects in depth. This includes their goals, any research about existing technology and the market, what new technology was developed, what problems and uncertainties came up, and how these issues were dealt with and solved.

When you create the technical report, you can get this important information from different sources like project plans, design documents, test results, and by talking to the developers and technical leaders involved. These sources together give a complete view of all the R&D activities.

Keeping thorough records during the R&D project is extremely important. HMRC’s guidelines say that businesses need to show “proof of the R&D project, the uncertainties faced, the steps taken to solve these problems, and the technological advances made.” This proof can come in various forms, like documents explaining what the software needs to do (SRS), project plans, test results, documents about how the software is designed (SDS), project management summaries, research materials, papers the company has published in conferences, and any other documents that show the R&D project was undertaken.

It’s worth mentioning that HMRC doesn’t tell every company exactly what documents to use because each company works differently and does research in their own way. But the documents you submit need to meet these three important criteria:

  • Proof of Technological Advance: They should clearly show that the R&D project actually achieved a scientific or technological improvement.
  • Proof of Uncertainties: They should prove that the problems and uncertainties during the project weren’t easy for experts in the field to figure out.
  • Detailed R&D Activities: The documents should give a complete account of all the R&D activities that were done to solve these problems and uncertainties, and show the systematic approach taken to handle the project’s challenges.

Meeting these criteria is crucial for proving that your R&D activities qualify and for successfully claiming R&D tax credits.

Working with Technical Writers

Working with a technical writer from Myriad Associates can greatly improve your chances of successfully claiming R&D tax credits. Our team of technical writers at Myriad Associates has extensive experience and a diverse technological background. While they might not be experts in your specific field, they have the skills to extract the necessary information for a successful claim.

Here’s how the process works:

  1. Information Gathering: Our technical writers collaborate closely with your team to collect detailed information about your R&D projects. They evaluate whether these projects meet the HMRC guidelines.
  2. Explaining Technological Advancements: Our technical consultants excel at explaining the technological advancements achieved in your projects. They present this information effectively to HMRC reviewers, showcasing the innovative strides you’ve made in your R&D work.
  3. Handling Uncertainties: Our technical writers also carefully document the uncertainties faced during your projects and the R&D work done to resolve them. This detailed record ensures that every aspect of your R&D projects is covered.

The end result is a strong technical report created by our technical writers. It includes all the critical information necessary for a successful R&D tax credit claim. To ensure quality and completeness, our documents undergo review by other technical writers, reducing the chances of missing important details.

Importantly, Myriad Associates has a track record of successfully handling many claims, demonstrating the expertise and reliability of our technical team. You can see some examples of successful claims managed by our technical experts here.

Creating a Comprehensive Tech Report  

A detailed technical report is crucial for a successful R&D tax credit claim. It ensures that all necessary information is provided to HMRC and reduces the chances of follow-up questions. The goal is to give HMRC a full understanding of the claim, so they can process the refund based on the company’s innovative work.

While there’s no strict template for creating an R&D technical report, here are some recommended steps:

  1. Introduction: Start with an introduction that includes the company’s background and the commercial goals driving the projects.
  2. Project Overview: Identify the specific R&D projects within the company’s overall efforts. Some projects might include multiple R&D initiatives. Provide an overview of each project, explaining its technical goals and objectives.
  3. Industry Context: Highlight the differences between what existed in the industry before the project and how the project addresses unmet needs or challenges posed by existing solutions. This helps HMRC understand the technological gap the project aims to fill.
  4. Technological Advancements: Clearly describe the technological advancements achieved by the company and how they surpass existing solutions in the market.
  5. Uncertainties: Explain the technical uncertainties encountered during the project and why they were not easily solved by professionals in the field.
  6. R&D Activities: Detail the specific R&D activities carried out for each uncertainty, including the work done, tests conducted, and any new methods, processes, or services developed.
  7. Additional Information: Include any other relevant details about the R&D work, such as ongoing efforts in subsequent accounting periods, evidence of work performed, and key personnel involved.

When creating the report, remember these key points:

  • Detail-Oriented: Provide comprehensive information about the R&D work without unnecessary details.
  • Accessibility: Make sure the report is understandable to non-technical individuals by minimising technical jargon for clarity.
  • Focus on R&D: Concentrate on technical information and exclude details about non-R&D activities like business analysis, project management, sales, and marketing.
  • Evidentiary Support: Include documentation like project plans, timesheets, project tracking records, and other relevant records to back up the R&D activities described in the report.

A well-prepared technical report is a valuable asset when claiming R&D tax credits, and it plays a crucial role in the processing of your claim by HMRC.

Review and Validation 

A thorough review of the technical report is a crucial step to make sure that no important details are accidentally left out. This review should ideally be done by someone who wasn’t directly involved in creating the report. For example, if a team of two developers or technical writers worked on the report, it should be checked by a third party, like another developer or technical writer. This external perspective is valuable in looking at the report from a fresh angle.

During the review, it’s important to ask questions to uncover any potential gaps in the report’s clarity and completeness. This helps make the report stronger.

After the review, it’s essential to make sure the report aligns with HMRC’s detailed guidelines. You can find these guidelines here. Every point specified by HMRC must be carefully addressed and supported by the information in the report.

If there are any discrepancies or confusion about following HMRC’s guidelines, it’s a good idea to pause and go back to those specific points. Resolve any differences to ensure that the report completely follows HMRC’s requirements before you submit it.

A diligent review and validation process make sure the technical report is not only thorough but also lines up perfectly with HMRC’s expectations. This reduces the chances of follow-up questions and increases the likelihood of a successful R&D tax credit claim.

Submission and Follow-Up

Once you’ve submitted the finalised report, you can relax and wait for the refund to arrive in your company’s account. This usually marks the end of the process, and you can look forward to a successful R&D tax credit claim.

However, it’s important to know that in some cases, HMRC may start a follow-up inquiry. This doesn’t necessarily mean there’s anything wrong or concerning with your claim. These inquiries are routine and are a way for HMRC to ask for more information or clarification about the R&D projects.

Typically, these inquiries come in the form of a document with follow-up questions related to the R&D work you did. It’s really important to respond effectively to these questions because it helps address any doubts the HMRC reviewer might have. It’s an opportunity to provide more clarity and show that your R&D activities meet the eligibility criteria and align with HMRC’s guidelines.

So, even if you get an inquiry, there’s no need to worry if you’re confident that your R&D work qualifies and you’ve included all the necessary details in the report. Responding quickly and accurately to HMRC’s questions will speed up the processing of your claim and ensure a successful outcome.

Conclusion

In the world of R&D tax credits in the UK, the key to making the most of them is thorough documentation. A detailed technical report is the path to successful claims. Every step is important, from choosing the right projects and explaining technological advancements to dealing with uncertainties and careful review. Working with experienced technical writers can make the process easier, and following HMRC guidelines and managing follow-up inquiries effectively ensures a smoother experience. In the end, a successful R&D tax credit claim doesn’t just provide financial benefits but also acknowledges your dedication to technological progress. It’s a win-win for innovation and business growth.

Why choose Myriad Associates to help with your R&D tax claim?

Myriad Associates has been managing R&D Tax Credit claims for nearly two decades, assisting a broad range of companies up and down the country. No matter what size or sector your company is in, we can help.

We understand how important R&D Tax Credits are, both to individual companies and the wider economy as a whole. However, because the government is keen to maintain the scheme’s success, they often update the rules and regulations around these R&D tax schemes, which can get confusing. This is where we come in.

The expert team of R&D tax advisors here at Myriad Associates apply a unique methodology when navigating through the complexities of the R&D tax claims process. To secure the R&D tax relief you're eligible for, we maintain a holistic approach.

First, we’ll work to understand the technical and scientific uncertainties your project faced in order to ensure we meet HMRC's strict R&D tax credits criteria.  Then, we’ll use that information to build a robust technical report, collate all the relevant costs and calculate the benefit owed for inclusion in your company’s tax return.

We’ll also happily handle any enquiries from HMRC should they arise. The claims criteria can be difficult to understand and so enquiries are becoming a more regular occurrence as HMRC works hard to tackle abuse of the scheme.

Whatever stage you’re at in your claim for R&D Tax Credits, simply contact us on 0207 118 6045 or use our contact page.

Whether you need full support from start to finish or simply have a quick question, we’re here to help.

Do you need help with an HMRC enquiry?

Has your R&D tax relief claim attracted the attention of HMRC? Don’t panic.

Enquiries into R&D tax relief claims by HMRC are on the rise. Our highly-qualified team will provide the utmost support to secure a beneficial resolution for your HMRC R&D enquiry, so that you can rest assured knowing your business is in safe hands.

We are well equipped to offer actionable advice on any R&D tax relief enquiries made by HMRC as well as provide proactive reviews that can help ensure complete peace of mind during these uncertain times.

If you’ve been contacted by HMRC about your R&D Tax Credit claim, or you’d simply like to know more, please do get in touch using our contact form or call our friendly team on 0207 118 6045.


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