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During the excitement that likely comes from seeking an advance in science and technology, innovative businesses may be too focused on research to worry about their eventual tax relief claim.
Accountants may then be left to figure out costs and project objectives when the time comes to put together the R&D tax relief claim.
While it is possible to piece things together in this way, it may be helpful to consider how more extensive tracking could benefit an R&D tax relief claim.
Tracking the highs and lows of innovation
The core of a valid R&D tax relief claim is the idea that an advance has been sought in science and technology, whether it was successful or not.
HMRC needs to understand the difficulties that the work faced. If something is too simple and straightforward, then it is unlikely to count as a valid project.
When basking in the success of a completed project, or mourning the lack of progress, it can be difficult to remember each step of the journey that led to that point.
There is no need to recount every single instance of success or failure in the project. A technical narrative will be strengthened by having robust evidence that demonstrates a commitment to achieving an appreciable improvement.
Keeping an eye on costs
In these economically challenging times, innovative businesses are watching budgets more closely than ever before.
R&D tax reliefs can incorporate a range of different expenditure, but some of these will need to be evidenced more thoroughly.
The cost of salaries is likely to be easier to retroactively calculate as shift patterns and work schedules can be coordinated with payroll information to reveal time spent doing R&D, but not all costs can be similarly calculated.
Energy and fuel used for R&D can be included in an R&D tax relief claim.
However, putting the entire bill into the claim is not valid as there will be some expenditure that is connected to other activities.
Instead, the amount used in the process of R&D will need to be determined.
HMRC do accept rough estimates, but accurate information is beneficial.
This is especially true if the business uses more energy than HMRC might expect, as this could trigger an enquiry at which point the cost will need to be defended or removed.
Tracking the amount of energy used in the research can help to provide vital evidence to preserve the full value of included costs, strengthening the overall R&D tax relief claim.
Getting better tracking habits
As R&D tax consultants, we work with accountants and innovative businesses to improve the way that R&D tax relief claims are managed.
A significant part of this is enhancing the way that R&D is tracked and processed before the R&D tax relief claim even begins.
We can work with you and your clients to offer advice on how to improve tracking processes so that there is more information to work with both claims and enquiry defences.
While a bit of extra tracking could take more time and energy at the time, it can reduce the challenge and stress when it comes to interacting with HMRC.
Speak to our team to discover better ways of tracking and compiling the data needed for R&D tax relief claims.
Adam Bointon is a Technical Director specialising in R&D Tax Credits for SMEs in manufacturing and software sectors. With over 15 years’ experience, he works closely with businesses to identify qualifying R&D activities and prepare clear, compliant claims. He combines technical expertise with a strong understanding of economics and finance to support successful outcomes. Adam also contributes to industry webinars and CPD sessions, sharing insights on R&D tax relief and HMRC requirements.
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