How to strengthen your R&D tax credit appeal

Many UK companies submit claims for Research & Development tax credits, but become frustrated when their tax claims are rejected by HM Revenue & Customs due to the stringent approach to the process.

In this blog, we look at what can go wrong in R&D claims, how to ensure you submit relevant information and expert evidence when claiming R&D tax relief, and an example of how we helped a client prepare a strong, evidence-based claim aligned with HMRC’s criteria and tax credits being received.

Understanding R&D tax relief

Research and Development (R&D) tax relief is a UK government incentive offered to companies for investing in innovation.

R&D tax relief provides a cash credit based on their expenditure in Research and Development. This tax credit enables businesses to reduce their tax bill and provides valuable cash back, strengthening their cash flow.

Several areas require sufficient evidence and documentation to prove eligibility and have your claim accepted.

Eligibility criteria for R&D claim

To qualify for R&D tax relief, you must prove how your project has advanced science or technology.

Below is a clear overview of what HMRC typically requests when they initiate a compliance check into an R&D tax relief claim.

What HMRC looks for in an R&D enquiry

1. The scientific or technological advance

• HMRC wants to see the technological advancement in science or technology that the project aimed to achieve.
• They ask for a clear baseline of existing knowledge and methods at the project’s start.

2. The uncertainties involved

• Businesses must explain what technological uncertainties existed and why they were not readily solvable by a competent professional.
• HMRC seeks evidence that the outcome could not have been easily deduced from publicly available information.

3. How the uncertainties were overcome

• HMRC requests a description of the systematic investigation, experiments, testing, and iterations.
• They expect detailed records showing how different approaches were tried, what failed, and how solutions were eventually found.

4. The competent professional test

• HMRC requires expert evidence that individuals leading or overseeing the project were competent professionals in the relevant field.
• This includes qualifications, experience, and direct involvement in the R&D activities.

5. Costs and calculations

HMRC asks for a breakdown of expenditure claimed under the correct categories:

• Staff costs – who worked on R&D, what they did, and their proportion of time.
• Subcontractors – names, roles, and copies of contracts.
• Externally provided workers – who they were and what they contributed.
• Consumables and software – what was used and how it related to R&D activities.
• Apportionments – rationale and evidence for how costs were allocated.

6. Supporting documentation

• HMRC frequently requests further information and supporting records, such as contracts, invoices, project notes, technical diagrams, experiment logs, and timesheets.
• They expect contemporaneous records, not just retrospective narratives.

How dns accountants approach your R&D claims

The process dns accountants take to make an R&D claim on your behalf is to ensure we prepare claims to mirror HMRC’s own enquiry schedule. Our specialist R&D team will ensure that from the start, our technical reports, cost breakdowns, and supporting evidence already address these six areas above. Doing so not only strengthens claims but also shortens the enquiry process if HMRC does open one.

Common challenges in HMRC’s R&D tax relief evaluation process

HMRC’s compliance process requires detailed documentation and evidence. Many companies’ R&D claims are rejected due to HMRC’s interpretation that their activities do not meet the criteria for scientific or technological advancement. These claims are often rejected because of the following failures.

• Definitions: HMRC applies specific criteria for technological advancement, requiring claims to include clear technical documentation.
• Internal expert consultations: Decisions made by HMRC can involve consultations with internal specialists. HMRC specialists may approach technical innovation from different perspectives.
• Broad rejections: In some cases, HMRC may request additional clarification, and companies should be prepared to provide detailed supporting evidence.

Despite providing detailed documentation, including technical reports and evidence of innovation, companies frequently face rejection. This shows the need for a strategic approach to meet HMRC’s standards and the need for companies to seek professional advice and expert support from accountants and R&D tax experts such as dns accountants.

Why do HMRC R&D investigations get started?

HMRC has a responsibility to ensure that government funds are distributed correctly and therefore it carries out checks on a proportion of R&D claims each year. More recently, HMRC has introduced additional compliance resources, resulting in an increase in the number of checks. Compliance checks can be triggered by random sampling or a specific risk assessment approach.

Case Study: Supporting a UK technology company through an HMRC R&D enquiry

Below are details of how dns accountants helped and defended an R&D claim for a client, A UK-based technology company. HMRC opened a routine enquiry and a standard enquiry notice was issued to look into more detail at the claim made by A UK-based technology company.

1) Type of R&D claim

Primary areas the claim covered were:

• Advanced software engineering and data-driven innovation projects.
• AI-machine learning
• Metadata modelling
• Optimisation

2) How dns prepared and defended the claim

a. Drafting & refining the technical narrative:

We rewrote the technical narrative to explicitly map out the work, including baseline, uncertainty, competent professional, and systematic investigation. The claim included a plain-English baseline of software engineering and then outlined the technical gaps that the project aimed to address.

The narrative avoided business-only descriptions and reframed innovations as advances in software engineering.

b. Gathering evidence & closing documentation gaps:

We assembled and submitted evidence, including project timelines, experimental logs, failed-attempt records, benchmark results, architecture diagrams, code repository references, technical specification documents, GDPR/privacy design notes, and consultant/subcontractor engagement letters, as well as the CVs of named competent professionals.

We also supplied staff/role lists and described what each individual did in R&D terms (so HMRC could match activities to costs).

c. Addressing HMRC’s enquiry schedule (point-by-point)

We went through the HMRC schedule (the list of items HMRC requested ) and supplied the required items: a clear explanation of the scientific/technological advance, details of the uncertainties, a detailed timeline showing who did what and when, evidence of the competent professional input, and examples of experimental iterations and test results.

Cost categorisation: The technical narrative was supported by qualifying expenditure under. The technical papers made it possible for the tax specialists to allocate/justify the costs appropriately.

d. Pre-emptive preparation to reduce HMRC adjustments:

We included a market analysis comparing A UK-based technology company’s technical approach with public products and academic literature. This pre-empted HMRC’s argument that the work was only a routine adaptation of existing products/techniques.

We also documented multiple failed approaches and the rationale for subsequent experimental choices (this is precisely the kind of “systematic investigation” evidence HMRC looks for).

3) Enquiry focus - what HMRC required

Routine IT vs. genuine R&D: HMRC’s central area of focus examined whether the work was a routine adaptation of known AI/ML techniques, rather than a genuine advancement in science/technology. They explicitly asked for a baseline technology statement and evidence that the claimed advances were not “readily deducible.”

Competent professional tests and costs: HMRC reviewed the role/evidence of the named competent professionals to ensure their names were clearly linked to the staff/subcontractor cost tables. They requested proof of consultation and who had performed the R&D activities.

Evidence depth: HMRC required granular evidence (experiments, iterations, failed paths) to establish a systematic investigation. That formed the focus of their follow-up.

4) Ensuring HMRC accepted the claim

We submitted detailed technical documentation on the project. The submission explained the techniques used and why they could not be solved by routine engineering. The experimental iterations (and benchmarking gains) were central to this argument.

We also documented a novel approach to a specific problem and modifications made to maintain stability under rapidly changing objectives.

Failed approaches and the reasons for their failure were also documented. Demonstrating the sequence of failures ? hypothesis ? experimental change ? improved results was persuasive.

We provided a bespoke differential-privacy approach that showed the team had to solve a genuine technical trade-off not covered by off-the-shelf approaches.

’Aha’ Evidence: the decisive pieces were documented experimental logs / failed attempts, quantifiable benchmarks showing material performance advances and comparison with public tools/papers to show the advance was not available in the public domain.

Those elements together satisfied HMRC’s requirement for a technological advance arising from systematic investigation.

Outcome

dns converted a technically complex, AI/IT into a compliant package by:

(i) Reframing the work as software-engineering advances.

(ii) Supplying contemporaneous experimental evidence and competent-professional corroboration.

(iii) Pre-empting “routine IT” objections with market comparisons and failed-attempt logs. HMRC closed the check with no adjustments to A UK-based technology company return.

HMRC closed the compliance check without making any adjustments to A UK-based technology company return — i.e., the relief claimed was accepted. The final closure letter confirmed that no amendment was required.

Insights and implications

Our client’s case highlights the complexities involved in defending R&D tax credit claims, but it also shows that with proper preparation and supporting evidence, R&D claims can meet HMRC’s requirements. The client’s project was innovative – but HMRC’s initial rejection underscored the difficulties companies face in proving their eligibility for certain reliefs. Extended enquiry processes may occur where HMRC requires further information.

The case shows the importance of submitting a well-prepared R&D claim, including a technical report that clearly explains how a project meets R&D criteria. Although HMRC opened a routine enquiry, the dns R&D team had a clear defence strategy in order to provide evidence to HMRC that it required.

6 things HMRC will ask for in an R&D enquiry (and how to be ready)

Making an R&D tax credit claim can bring valuable relief - but what if HMRC opens an enquiry into your claim?

An R&D tax enquiry is a process through which HMRC requests that the company claiming R&D relief provide more information and clarification on their claim.

If you’re facing an enquiry, you mustn’t ignore it and take immediate action. HMRC typically requests the same core pieces of information each time. If you know what they’re looking for (and prepare for it in advance), your claim will stand up to scrutiny.

Here are the six things HMRC will ask you to demonstrate:

1. The advance in science or technology
2. The uncertainties you faced
3. How you overcame the uncertainties
4. The competent professional test
5. The costs and calculations
6. The supporting documentation

How dns can help with your R&D tax credits

At dns accountants, we prepare every R&D claim with HMRC’s enquiry process in mind. Our team ensures that technical reports, cost breakdowns, and supporting records already address the six points above. That way, if HMRC does open an enquiry, your claim is robust, defensible, and far less stressful.

Our team of R&D tax experts, accountants, and wider specialists work together to provide specialist R&D support, making R&D easier for companies. We help you get the funding your innovative ideas deserve. Our R&D Tax credit claim process is as follows:

• Contact us by phone or email for a complimentary, no-obligation assessment.
• We first verify your company’s eligibility to claim and the accounting periods for which you can file the claim.
• We work with you to identify the projects and costs eligible for R&D.
• Our specialists then work with you to gather project information related to qualifying R&D activities, preparing the technical report.
• We calculate the tax benefit and prepare the corporation tax return.
• Submit the claim to HMRC.
• We respond to any HMRC queries or challenges.

Need help with an R&D claim or an R&D enquiry?

Contact dns on 03300 886 686 or email us at [email protected].

This content is for general information purposes only and does not constitute professional advice.

HMRC assesses all R&D claims on a case-by-case basis. Past outcomes do not guarantee future results.

Case study details have been anonymised to protect client confidentiality.

About the author

Gary Zouvani
I am a qualified chartered management accountant with over 25 years’ experience working in industry and accountancy practise. Currently DNS group operations director I manage over 50 employees as well as head up our accountancy franchise proposition.