R&D tax credits: designing a process that would survive a forensic HMRC review

UK finance leaders have learned the hard way that R&D tax credits are no longer a low risk annual windfall. Enquiry activity has increased, HMRC’s expectations have tightened and boards are asking whether their processes would stand up to a forensic style review.

This is not just a compliance issue. For R&D intensive companies, the reliability of R&D tax credits can materially affect cash flow, runway and debt capacity. The process is now strategic.

Why process matters as much as the claim value

CFOs face three linked risks if R&D incentives are handled informally:

• Cash flow risk: delayed or reduced repayments when HMRC raises queries or opens an enquiry.

• Balance sheet and covenant risk: restatements that affect EBITDA, net debt or interest cover.

• Reputational risk: perceptions from auditors, investors and lenders that the company is cavalier with public money.

A robust process is the only way to treat R&D relief as a recurring, bankable source of support rather than a speculative bonus.

What HMRC expects to see in a high risk review

While every case officer is different, there is a consistent pattern in what HMRC expects of serious claimants:

• Clear technical rationale for why projects seek an advance in science or technology, and what uncertainties were tackled.

• Documented project selection methodology that shows how qualifying activities are identified, not just a list of titles.

• Evidence created contemporaneously, such as design documents, lab notes, sprint boards or test reports, rather than narratives written from memory after year end.

• Transparent cost allocation rules for staff time, consumables, software and subcontractors, with sample evidence.

• Reconciliation from claim figures back to the ledger, and consistency with statutory accounts and other tax returns.

If any of these pillars is weak, a technically valid claim can still be exposed.

The core components of a forensic ready R&D tax process

A process that can withstand intensive HMRC scrutiny typically has five elements.

1. Governance and ownership

   • A written R&D policy approved at board or audit committee level.

   • A named senior owner in finance or tax with clear accountability for risk appetite and methodology.

2. Structured project identification

   • Criteria for qualifying activity that reflect current guidance, not folklore.

   • A repeatable process for tagging projects in systems, rather than ad hoc lists generated by one individual.

3. Evidence and technical narratives

   • Standard templates that capture objectives, uncertainties, approaches and outcomes in plain language.

   • Supporting artefacts stored in a central repository, linked to each project.

4. Costing and sampling methodology

   • Defined rules for apportioning staff time, including how diaries, timesheets or manager estimates are used.

   • Sampling approaches for large teams or long projects, with documented rationale.

5. Integrated audit trail

   • A clear chain from narrative and sampling decisions to nominal codes, payroll records and invoices.

   • Version control and sign off at appropriate levels, so changes are traceable.

Without this spine, even well intentioned claims are vulnerable.

Industrialising R&D tax credits

According to consultancy FI Group, many businesses treat R&D tax credits as a yearly exercise rather than a continuous process. That approach is increasingly risky. FI Group’s advisers typically help CFOs and tax leads to:

• Re design their claim methodology so that it mirrors how projects are actually managed and accounted for.

• Build structured interview and questionnaire programmes that gather technical evidence efficiently, without overwhelming engineers or scientists.

• Implement sampling frameworks that are statistically defensible yet practical to operate.

• Prepare enquiry ready documentation packs that link narratives, calculations and source data in a way that is easy for HMRC or auditors to follow.

By treating R&D relief like any other significant funding source, FI Group’s clients aim to reduce volatility, shorten HMRC interactions and give boards confidence that the organisation can defend its position if challenged.

Practical steps for CFOs and tax leads

A concise roadmap for designing a forensic ready process:

1. Run a gap analysis
   Compare current practice against the elements above. Involve tax, finance, technical leads and, where relevant, external advisers. Identify weaknesses in governance, evidence, sampling and audit trail.

2. Define a formal R&D policy
   Document scope, eligibility criteria, documentation thresholds, sampling rules, fee arrangements with any advisers and enquiry protocols. Have it endorsed at board or audit committee level.

3. Align systems and data
   Where possible, tag R&D projects and costs in project accounting tools, ERP and HR systems. Reduce reliance on spreadsheets that sit outside core finance infrastructure.

4. Standardise narratives and evidence collection
   Introduce templates and checklists for technical leads. Schedule short, focused touchpoints during the year rather than single long interviews at year end.

5. Plan for enquiries before they happen
   Decide who will respond, what documentation will be shared, how quickly and on what escalation path. Treat enquiry readiness as part of the process, not a contingency.

6. Use independent challenge periodically
   Ask external specialists, such as FI Group, to review methodologies, sample files and enquiry responses every few years. Fresh eyes often catch issues that internal teams have normalised.

When R&D tax credits are handled with this level of discipline, they become a more predictable component of the funding stack, supporting investment decisions rather than undermining them. For boards and CFOs operating in a more demanding tax environment, that predictability is worth as much as the relief itself.