Accurate documentation and record keeping is essential for a successful UK R&D tax credit claim, now known as the Research & Development Expenditure Credit (RDEC). Especially given that the likelihood of an HMRC enquiry is around five times higher than it was a couple of years ago. On this page we provide some insights into what documents you will need to cover your R&D projects and the qualifying R&D costs you have identified.
If you end up in a compliance check, you need to have clear evidence that the work undertaken meets the criteria for qualifying R&D and that the costs claimed are directly linked to those activities.
Given that claims are done retrospectively, good documentation and record keeping, ideally compiled at the time the work is undertaken, is invaluable to aid in completing the mandatory online R&D Additional Information Form (AIF).
Essentially, your documentation needs to do two things: show your R&D activities qualify and clearly link your claimable costs to your R&D activities. Documents should be gathered as you go rather than when you’re ready to make the R&D claim.
Here’s how to document both projects and costs effectively to support your claim.
a. Clearly identify what field of science or technology your R&D relates to
HMRC wants to see a clear link between your projects and the definition of R&D for tax purposes. This start with being clear about which field of science or technology you are seeking to make and advance in.
b. Describe the baseline at the start of your project
To qualify as R&D, a project must seek an advance beyond the current state of knowledge in the relevant industry and field. It’s therefore important to assess the industry baseline – i.e. what is already known or publicly available and what is not? Do a simple review of published papers, technical standards, competitor products, or discussions with experts and document what you found and where the gap is that necessitates you undertaking R&D. This evidence should support your claim that the advance sought could not easily be achieved by a competent professional working in the field.
c. Describe the advance you are seeking
Identify exactly what your R&D project was or is seeking to do that you believe would represent an advance in knowledge or capability against the baseline. In practical terms, this is likely to involve describing how your R&D sought to improve an existing product, process, or service, or create a new product, process or service.
d. Describe the Uncertainty Faced
By definition if something requires R&D, there must be some complexity or uncertainty about how to achieve the desired project outcome – this is referred to in R&D Guidelines as ‘the scientific or technological uncertainty/ies’. You need to clearly describe the specific scientific or technological uncertainties you faced in seeking to create or improve the product, process or service you are developing. Make it clear why the outcome being sought wasn’t readily deducible by a competent professional.
e. Describe the Work Done to Overcome It
Summarise your development process – what experiments, testing, development or problem-solving was involved? Include different approaches tried and how they informed the final outcome, including any failures or dead-ends encountered.
Relevant records include:
meeting notes
design iterations
test results
developer logs
Often, R&D activities are part of a larger commercial project – but not all phases will qualify. Clearly identify when the R&D work began (i.e., when the scientific or technical uncertainties emerged) and when it ended (i.e., when the uncertainties were resolved).
Relevant records include:
start and end dates for each R&D phase or project
timesheets for staff time spent on R&D
R&D contractor briefs
HMRC requires a clear connection between the costs claimed and the qualifying R&D work. The main records per allowable cost type include:
a. Staff Costs
· project plans
· staff timesheets or manager estimates of time spent on R&D per employee
· payroll records (showing gross salary, PAYE, NI and any pension paid, per R&D employee)
b. Contracted-out R&D and Externally Provided Workers (EPWs)
· supplier and contractor contracts or statements of work
· invoice and payment records to support the R&D costs being claimed
· proof of overseas expenditure exemptions (if relevant) – if you believe you are exempt from restriction on claiming overseas expenditure, keep documents to prove your exemption.
c. Consumables and Software
· records of usage and invoices for materials and energy consumed on R&D / and any apportionment methods)
· records of payments and use of software licenses needed for R&D / and any apportionment methods.
d. Cloud Computing and Data Costs
itemised invoices and logs showing how these were used and cost apportionment methods
Whether it’s a spreadsheet, project management tool, or dedicated R&D tracking software, a central repository helps keep documentation consistent and accessible – especially useful in the event of an HMRC enquiry.
Since August 2023, an AIF must accompany all claims. Ensure your records align with the information requested in the form – including project descriptions, qualifying activities, and costs per project.
Final Thought
Good documentation is your best defence against delays or enquiries. It also helps you maximise your claim value by capturing the full extent of eligible work. Embed record-keeping into your R&D processes –don’t just make it a year-end exercise.