What to include in an R&D technical report

Currently companies are not obligated to submit a technical narrative in support of an R&D tax credit claim, however it is considered good practice. We are often asked what information to include in this technical narrative.

Many companies are unaware that from April 2023 R&D tax credit claims will need to be accompanied by a technical narrative which has been signed off by a director of the claiming company, even though there are no outlined requirements at present, or officialised standard format for presenting the information to HMRC.

The technical narrative is your opportunity to provide HMRC with all the details that they need to understand your R&D tax credit claim, effectively a narrative detailing your company, your R&D project(s), and details about the activities carried out in resolving or attempting to resolve R&D. The key is in knowing what to put in and what to leave out.

The primary function of the R&D technical narrative is to explain why your company and your project are eligible for R&D tax credits.

The following headings reflect suggested headings for inclusion in a technical narrative.

Project overview

Set the scene for the R&D project

• What was the aim of the R&D?
• What did you want to achieve and why?
• What were you doing before it was determined that there was a requirement to undertake an R&D project and why did it have to change?
• Why there was nothing available on the market that could do the job instead of having to undertake R&D?

Technical or scientific advance

This should be a clear statement of the scientific or technological advance, not a summary of the project. Link the advance to the guidelines, it will help HMRC to connect what you have described with the guidelines.

Technological or scientific uncertainty faced and work done to resolve the uncertainty

The starting point:

• What were the uncertainties or unresolved problems that you were faced with?
• How did they manifest themslves? This MUST be non-routine and technical. If it worked first time, it is not qualifying R&D.
• What did you do to try and resolve the problem (include detail of specific parameters or criteria ranges tested)?
• How many iterations of development were there?
• What trials were conducted?
• What was the result – did it resolve the problem? If not, then describe in the same way the next cycle of development.

Conclusion – claim summary and achievements

Were the uncertainties resolved or the advance achieved? Did you fail and was the project abandoned? Or is the work to resolve the uncertainties and achieve the advance ongoing into the next financial period?

Ineligible activities

These are activities which fail to meet HMRC definitions of qualifying activities and should be excluded from the technical narrative, any costs should also be excluded from the qualifying costs. Examples of activities undertaken within an R&D project that would be deemed to be ineligible could be:

• purchase and routine configuring of off-the-shelf software packages
• routine testing or inspection activities for quality control
• development related purely to aesthetic properties of a product or packaging.

Boundaries of the R&D project

Not all elements of an overall R&D project will qualify under the HMRC’s guidelines, as we have outlined above. Including details of where you have identified the boundaries of the project provides HMRC with further evidence that you are considering the guidelines during the compilation of the claim, both technically and financially.

Remember R&D activity starts when you begin working to resolve either the technical or scientific uncertainty that has been identified. R&D activity ends when the technical or scientific uncertainty has been resolved or work to resolve it ceases.

The activities that are eligible for inclusion should end once a working prototype that solves the problem has been developed and exclude any activities related to production. Eligible R&D may restart if another scientific or technological uncertainty is identified once production has commenced.

Dos and don’ts

• Do keep it concise, but ensure that the key information is included. Short snappy paragraphs that contain factual statements which detail the resolution path of the uncertainties are best.
• Don’t blind the reader with technical jargon that they won’t understand. Write for a layperson, not an industry expert.
• Do ensure the technical narrative is focused on the technical information. There is no need to include details on commercial, marketing or sales issues or other non-qualifying activities, keep the narrative technical.
• Don’t waffle, too much non qualifying information or scene setting could lead to the relevant technical information becoming “lost” in the narrative, with HMRC unable to determine where the R&D is and what you are trying to achieve.