When HM Revenue and Customs (HMRC) looks at an R&D tax relief claim, it is not only interested in what ultimately worked but also in the failures that paved the road to success.
In fact, the failure to achieve the desired outcome is a sign that true R&D work took place as the competent professional struggled to deduce the way to overcome the scientific or technological uncertainty.
However, it is important that your clients keep an accurate record of the trial-and-error process to ensure that failure can be attributed to the difficulty of the task and not to an issue with the competent professional.
Accurately recording failed attempts to resolve uncertainty can also help justify the costs attributed in the R&D tax relief claim, as the logic behind using different materials becomes apparent.
Why should your clients document failures?
Failure logs are not a record of embarrassment or a sign that the competent professional needs a few more years of training.
Instead, failure logs highlight to an outsider, like HMRC, why an advance is difficult to achieve.
Recording what went wrong, why it was unexpected and how each failed attempt informed the next experiment helps HMRC trace a logical technical progression from uncertainty to solution.
Keeping the material date-stamped and version-controlled increases credibility and reduces friction during enquiries.
Similarly, a well-documented progression of failures makes the formulation of a technical narrative much simpler, as more detail can be included that will better illustrate the work of an innovative company to HMRC.
What a good failure log looks like in practice
Think of a failure log as a short, dated lab entry for each test attempt.
For every failed trial, the log should record the objective of the test, the hypothesis being evaluated, the exact test setup, the measured outcomes, and the interpretation of why the outcome diverged from expectation.
Of course, we understand that not every client will compile such a detailed report.
The more detail that can be gathered, the stronger the R&D tax relief claim and the easier it is to defend in the event of an enquiry.
Over time, a sequence of failure log entries should show deliberate iteration, and that chain is precisely what HMRC wants to see to evidence technological uncertainty.
Failure logs will also consist of saving the raw evidence rather than just the conclusions.
For software projects, this means storing timestamped commits, branch names, CI logs, test-case outputs, performance benchmarks, and the issue/ticket references that link code work to the technical narrative.
For physical or manufacturing trials, keep dated photos, sensor logs, machine-settings snapshots, lab-notebook scans, calibration certificates, rejected-batch records and material traceability data.
Wherever third-party test facilities are used, retain invoices, statements of work and the facility’s test-result PDFs.
For every item saved, include a short metadata note that details who ran it, which experiment it belongs to, and how it maps to the claim’s high-level technical question.
This makes it quick for an examiner to verify the connection between evidence and narrative.
How to weave failures into a logical technical progression
Start the narrative with a concise statement of the technological problem and the metric you used to judge success.
Describe the first plausible approach and the test designed to validate it.
Present the test output and explain why it failed to resolve the uncertainty, then state the revised hypothesis prompted by that failure and document the next test.
Repeat this pattern until the eventual resolution or the point where further work remains outstanding.
Avoid retrospective storytelling that omits the dead ends and instead let the failure entries dictate the structure of the narrative so the progression is chronological and causal rather than reconstructed.
As R&D tax consultants, we can help you compile compliant R&D tax relief claims.
We want to help accountants and innovative businesses improve their record-keeping processes to remove barriers that prevent full access to vital funds.
