R&D Tax Relief: What Are the Real Risks Behind the Reward?

If you’ve ever looked into claiming R&D Tax Relief, you’ll know it’s often pitched as a win-win. You invest in innovation, and the government rewards you for it. On the surface, it sounds simple. Develop something new, claim back some of the costs, and move on to the next R&D project with more cash in the bank. 

But as with most things involving tax and HMRC, it’s never quite that straightforward. 

I’ve spent years helping companies of all sizes make successful R&D claims, and I can tell you firsthand that there are risks involved. These are not necessarily ones to scare you off, but they are ones worth knowing about. Because if you’re not careful, that promising claim can turn into a problem that drags on for months. 

Let’s take a closer look at where the risks lie and how to avoid them. 

First, a Quick Reminder of What R&D Tax Relief Actually Is

The scheme is designed to support businesses that are working to solve scientific or technological uncertainties. Whether you’re developing new software, improving a manufacturing process, or creating a more sustainable product, if you’re trying to push knowledge or capability forward, there’s a good chance your work qualifies. 

There are two main routes and two main periods. Claims for accounting periods starting before 01/04/2024 can access the SME scheme, which is more generous and aimed at small to mid-sized companies, and the RDEC scheme, for larger companies or SMEs that don’t meet the SME criteria; as for claims starting after 01/04/2024, can access the new-RDEC and the ERIS schemes. Either way, the aim is to make innovation more affordable by giving you back some of what you’ve spent. 

So, Where Do the Risks Creep In?

The biggest risk I see time and time again: Not understanding what HMRC really means by R&D. 

The tax definition is not the same as what you or I might call research and development in day-to-day business. That disconnect can lead to problems. And unfortunately, HMRC is paying more attention to claims than ever before. 

Let’s explore some of the most common issues: 

Claims That Aren’t Fully Accurate 

Submitting a claim that includes ineligible projects, overstates costs or lacks proper documentation is risky. It might slip through once, but it’s not worth the gamble. HMRC can open an enquiry, and those are never fun. 

Weak or Missing Records 

Plenty of businesses carry out genuine R&D, but don’t write enough of it down. Without evidence of what you did, why you did it, and how you did it, your claim could fall apart under scrutiny. Be sure to keep a record of everything so you’re fully prepared. Some companies rely on people to retain knowledge, but people move on and can take the knowledge with them – leaving you without any evidence to back up your claim. 

Relying on Guesswork 

I’ve met plenty of finance directors and founders who try to piece together a claim based on memory or rough estimates. While it’s understandable (everyone’s busy), it leaves room for errors. And those errors can cost you. 

Working with the Wrong People 

There’s no shortage of advisors offering to do R&D claims these days. Some are brilliant; Others, less so. The wrong partner might push you to include questionable costs, inflate your claim, or disappear when HMRC comes asking questions. 

A Few Ways to Stay on the Safe Side

Don’t let the risks put you off. Yes, there are risks, but they’re all manageable and avoidable with the right approach and support.  

To submit a strong R&D claim, you need to be organised and thoughtful. Here’s what I recommend: 

Understand the Rules (Properly) 

Take the time to familiarise yourself with HMRC’s definition of R&D. If you’re tackling technical problems that don’t have obvious solutions, you may well be doing qualifying work. But make sure you know where the line is. 

Keep Track of What You’re Doing 

Start recording your R&D activities while the work is happening, not months later. Keep notes. Track time. Document problems and how you tried to solve them. This makes your life ten times easier when it comes to submitting a claim and providing the evidence.  

Be Honest About the Work 

Don’t try to stretch the definition of R&D to cover every improvement or project. If something doesn’t meet the criteria, leave it out. HMRC would much rather see a conservative, evidence-backed submission than a bold claim with little justification. 

Choose Your Advisors Wisely 

At TBAT Innovation, we’ve been helping UK businesses navigate R&D Tax Relief for over 20 years. Our team understands both the technical side of R&D and the tax side, so we’re well-placed to identify the true value of your work and make sure your claim stands up to scrutiny. 

Get in touch with us!

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The Bottom Line

R&D Tax Relief is a fantastic incentive, but it’s not one you want to get wrong. HMRC has become far more diligent with its reviews, and that means businesses need to be equally diligent with their claims. 

Think of it like this: claiming R&D tax relief is a bit like filing a self-assessment return. You can absolutely do it yourself. But the more complex it becomes, the more you benefit from having an expert in your corner. 

So if you’re unsure, if you’ve had a claim challenged, or if you just want to get the most out of your next submission, get in touch with us at TBAT Innovation. We’re here to make sure your hard work is recognised, without putting your business at risk. 

Considering Claiming R&D Tax? Get in touch

Whether you’ve claimed before or you’re just starting to explore the possibility, we’re happy to have a no-pressure conversation. We’ll talk through what you’re working on and help you understand if you’re on the right track.