The technical narrative is the opportunity for your clients to effectively communicate to HM Revenue and Customs (HMRC) exactly what was achieved and how it qualifies as R&D, and they need to speak the language of innovation in precise terms
Whether writing about software, hardware, or both, here are our top tips for handling technical narratives.
1) Be specific about software development technical narratives
For software projects, the heart of your narrative will need to focus on the ways that the software development itself constituted something entirely new and exciting.
This is one of the more challenging areas to get right as, from an outside perspective, software development looks functionally the same.
It is from that outside perspective that you should view the work and take the time to try to get to know what your client is working on.
It is good practice for a competent professional to take the time to explain the innovation to someone without the background knowledge and experience to understand the novelty.
Keeping the technical narrative free of needless technical jargon is essential for getting a claim approved by HMRC.
In that sense, writing about software should focus on what your client wanted the programme to do, why that was not something simple, and the course of trial and error required to get the programme operational.
To complement the technical narrative, a strictly defined timesheet should be kept that assigns time spent working on the novel software and not spent doing routine work.
2) Perfect physical prototyping technical narratives by going back to basics
Physical prototyping narratives are built around tangible experiments, such as materials trials, Computer Numerical Control (CNC) machining iterations, and laboratory test rigs.
It can sometimes be helpful to approach these kinds of technical narratives in the same way that you may have handled science experiments back in high school.
The technical narrative will outline what was desired, how the experiment was supposed to achieve that objective, and the results of the experiment.
It should be apparent from the technical narrative why the competent professional thought each attempt would work.
HMRC wants to see innovation at work, but this should not result in clients doing meaningless trials just for the sake of filling out a narrative.
When talking with clients, determine the logic that went into each prototype or trial otherwise HMRC might see that as a waste of money and resources.
3) Break down hybrid hardware-software projects into different technical narratives
The very definition of innovation is that it pushes boundaries, so some of your clients may not be operating within neat categories.
Increasingly, R&D straddles digital and physical realms as more companies seek to establish smart devices or robotics control systems.
In these cases, it’s vital to consider the best way to approach these technical narratives.
It may be beneficial to view the software and hardware aspects of the project as separate and write them up as two different projects.
This can allow for a more specific ascribing of costs to both aspects and can ensure that the technical narrative does not become unwieldy.
As they will both be submitted in the same claim, it will be necessary to ensure that costs do not overlap.
If a person works on both hardware and software, their time will need to be split accurately between the two parts of the project to allow for an accurate determination of the qualifying expenditure.
If the project is split in this way, it is important that the technical narratives serve as a bridge between the projects and that they mirror each other as much as needed to give HMRC a full picture of the way the work was conducted in tandem.
As with most R&D tax relief claims, there is not one definitive way of approaching things to ensure that HMRC will be fully happy and content.
As R&D tax consultants, we work to support you and your innovative clients so that they are appropriately rewarded for the work they conduct.
We can help you determine the best way to structure your R&D tax relief claims to minimise the chance of HMRC enquiries and can provide a robust defence should an enquiry arise.
