Technical reports are about to become mandatory for all R&D Tax claimants. Here are my insider tips for making sure yours passes muster with HMRC’s inspectors.
It’s a seismic moment for R&D Tax Relief. From 8 August 2023, all companies will need to share detailed technical information about their development work in order to access funding from the scheme.
Presently, only companies filing for the Research and Development Expenditure Credit (RDEC) were required to submit a technical report or ‘technical narrative’.
But soon, all businesses, including those claiming just a few thousand pounds of relief, will need to provide information about the advance they hoped to achieve, the obstacles they encountered, and the scientific or technological baseline they were looking to build upon.
Problems ahead for R&D Tax claimants
This development is likely to cause real problems for companies that aren’t used to describing their technical work in terms of the scheme’s eligibility criteria.
The new requirements mandate that claimants discuss their development work using terms and phrases that are specific to R&D Tax Relief.
Businesses that are not conversant in these terms and do not know how to apply them to their development work will struggle to convince their assessors of their eligibility for relief, potentially attracting a lengthy enquiry and damaging their standing with HMRC.
Even companies with some experience in writing technical reports are also at risk.
The new requirements are very prescriptive about what information companies need to provide. In many cases, using old templates, even those that have served companies well in the past, will not suffice.
"Soon, all businesses, including those claiming just a few thousand pounds of relief, will need to provide information about the advance they hoped to achieve, the obstacles they encountered, and the scientific or technological baseline they were looking to build upon."
Now that HMRC has adopted a much stricter approach to compliance, any deviation from your inspector’s expectations is far more likely to trigger an enquiry, aka a compliance check.
The best way to avoid this eventuality is by working with a seasoned, technically-literate R&D Tax Relief consultancy like GrantTree.
However, for those companies that choose to go it alone or work with a provider that does not have a great deal of technical or scientific expertise, I wanted to share some tips on preparing a technical report that’s compliant and easy to follow.
If you have any questions about these tips or are looking for some help on your upcoming claim, just get in touch. Our R&D Tax Relief team is always happy to help.
Tip 1: Read the requirements
My first advice to you is to make sure you have a firm grasp of what HMRC is looking for in your technical report.
As we cover in this detailed blog explaining the new requirements, you need to answer six questions about some or all of your research and development projects.
The six questions are.
- What is the main field of science or technology?
- What was the baseline level of science or technology that you planned to advance?
- What advance in that scientific or technical knowledge did you aim to achieve?
- What scientific or technological uncertainties did you face?
- How did your project seek to overcome these uncertainties?
- Which scheme you’re applying to, and how much you’re looking to claim
Once you’ve written your report, go back and make sure you’ve answered each of these questions.
Go through and tick them off with a pen if it helps. Missing just one could buy you a one-way ticket to an enquiry.
Tip 2: Get on top of the terminology
The six questions in the requirements are lifted from the government’s definition of R&D for tax purposes, which is set out in the guidelines established by the Department for Business, Energy and Industrial Strategy (BEIS) at the conception of the R&D Tax Relief scheme.
They contain several concepts which delineate ‘routine’, i.e. non-qualifying development work from the projects the government is willing to support with tax reductions and cash credits. This includes:
- Baselines
- Advances
- Uncertainties
If you work in science or technology, you may be familiar with these terms.
But be careful. They have specific definitions in the context of R&D Tax Relief, so don’t assume that your understanding of what, for example, ‘baseline’ matches the government’s interpretation. Assume they are different.
If they are, you’ll have avoided a dangerous pitfall. If they aren’t, you’ll get a pleasant surprise.
The best way to understand what these phrases mean is by closely studying the BEIS guidelines.
A less complete but far quicker way to familiarise yourself with these terms is by reading our blog ‘HMRC’s Definition of R&D Explained’.
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Tip 3: Avoid jargon, academese, and buzzwords (where possible)
When writing your technical report, always keep in mind two things: who you are writing for and what they are going to do with the information you give them.
Your audience is an HMRC tax inspector who, at least some of the time, won’t have a technical background. Their job is to look at your technical report, compare your projects against BEIS’ guidelines, and determine whether they qualify for relief.
You need to write your technical report in a way that helps them do this.
One of the keys is clarity. The easier it is for your inspector to apply the guidelines, the likelier it is your submission will be accepted. If you leave room for doubt and uncertainty, you’re more likely to end up with an enquiry.
"One of the keys is clarity. The easier it is for your inspector to apply the guidelines, the likelier it is your submission will be accepted."
One of the best ways to avoid doubt is to steer clear of jargon, acronyms, academese etc., that are specific to your field. If you need to use a technical term, explain it afterwards. “For this project, we hired a synchrotron (a kind of particle accelerator)…”.
It’s usual for highly technical people to lose sight of which terms are in common use.
If that’s you, or if you’re generally worried that your technical report is inaccessible, I recommend having a non-technical person, preferably someone within your company, such as a member of the finance or marketing team, review your narrative before submission.
They can point out anything that isn’t clear.
Tip 4: Collect technical data throughout the year
This is more of a longer-term tip, but it’s still helpful: collect the technical data for your report throughout your financial year, not just towards the end when you’re getting ready to file.
Collecting the data throughout the year achieves a few things.
First, it gives you a better sense of the trajectory of your company’s projects, making it easier to identify obstacles and explore how your development team sought to overcome them.
Second, it helps you capture necessary detail that might have been forgotten by the time you’re actually looking to file.
Third, it reduces the chance that your technical team will be all-hands-to-the-pump with a critical project and, therefore, unavailable to provide the data you need on your claim.
We generally recommend collecting data once a quarter. Building a rhythm is particularly helpful in cultivating engagement, so get the invitations out well in advance.
Protect your reputation with GrantTree
Those are my main tips for creating an accessible, well-structured technical report.
If you have any questions, would like an expert to review a report you’ve put together, or want experienced support on your next claim, GrantTree is here to help.
As one of the country’s leading R&D Tax providers, we’ve filed and defended more than 2,000 claims and unlocked more than £350 million in R&D Tax Relief.
Over the last 12 years, my fellow technical consultants and I have vast experience preparing compliant reports that demonstrate our clients’ eligibility to HMRC’s inspectors.
Indeed, Thomas J Vosper, founder of client Aisle 3, says our technical reports are “so thorough that, apart from sending them to HMRC, I don’t let them out of the building. That’s how well they demonstrated what makes Aisle 3 so special and our groundbreaking achievements in AI development.”
If you want help demonstrating what makes your technology special and why it qualifies for R&D Tax Relief, just get in touch.
