Introduction
For many UK tech startups, R&D tax relief provides vital cash flow during periods of heavy investment and limited profitability. However, HMRC’s expectations around evidence, documentation, and compliance have evolved significantly in recent years. Understanding these requirements is now essential for startups that want to secure relief without delays, disputes, or rejected claims.
What Is R&D Tax Relief and Why Is It Important for UK Tech Startups?
R&D tax relief is a UK government incentive that can reduce Corporation Tax or provide a payable credit (subject to scheme rules and company circumstances) when a company undertakes qualifying R&D. For tech startups working in software, data, AI, cloud infrastructure, and engineering, it can act as non-dilutive funding, supporting experimentation, recruitment, tooling, and iteration without giving up equity.
HMRC’s latest published statistics estimate that total support claimed through both R&D schemes (SME + RDEC) for tax year 2023–24 was £7.6 billion. While the exact amount any startup can claim depends on eligibility and costs, the key point is this: HMRC views R&D tax relief as material public spending, and that’s one reason it is more tightly policed than it used to be.
If your leadership team treats an R&D claim like a “finance formality,” you risk avoidable friction. The strongest claims are treated like a mini audit: evidence first, then narrative, then numbers.
What Is HMRC’s Definition of Qualifying R&D?
In the UK, the meaning of R&D for tax purposes is set out in government guidance (“Guidelines on the Meaning of Research and Development for Tax Purposes”), maintained by the Department for Science, Innovation and Technology (DSIT). At its core, R&D for tax purposes happens when a project seeks an advance in science or technology through the resolution of scientific or technological uncertainty.
For tech startups, this definition usually maps to questions like:
- Can we achieve performance/scale that competent professionals couldn’t readily achieve with known methods?
- Is the integration challenge genuinely uncertain (not just difficult), requiring systematic trials?
- Are we extending the capability of technology, not simply implementing existing patterns?
A crucial boundary: commercial uncertainty (will customers buy?) and market novelty (no one’s sold this in our niche) do not qualify on their own. What matters is technological uncertainty and the work done to resolve it.
How Does R&D Tax Relief Support Startup Cash Flow and Scaling?
In practice, R&D tax relief supports startups in two broad ways:
- Loss-making SMEs may be able to surrender losses for a payable credit, depending on the scheme rules that apply to the period and the company’s circumstances (including “R&D-intensive” rules where relevant).
- Profitable companies can use relief to reduce Corporation Tax.
This matters because many tech startups invest heavily in engineering, cloud, and product development long before stable profitability. R&D relief can extend runway and increase the pace of iteration, provided the claim is both eligible and defensible.
What Has Changed in HMRC R&D Rules Since 2023?
From April 2023 onwards, HMRC implemented several reforms aimed at improving compliance and reducing abuse. Key changes include:
- Claim notification requirements for some first-time or infrequent claimants (with specific timing rules) via HMRC: Tell HMRC you’re planning to claim R&D tax relief.
- The Additional Information Form (AIF) requirement for claims submitted from August 2023 onward, which became central to how claims are processed and risk assessed.
- A stronger compliance posture, including more queries and targeted interventions, reflected in HMRC communications and professional body guidance.
- Greater limits on overseas subcontracted R&D costs, with exemptions only in specific circumstances (depending on the period and the statutory conditions).
The direction of travel is consistent: more structure, more disclosure, and higher expectations of evidence quality.
What Evidence Do Tech Companies Often Miss When Preparing R&D Submissions?
Many tech startups don’t fail because they lack innovation, they fail because their claim doesn’t prove it. HMRC is not inside your Git repo, architecture calls, or incident reviews. Your submission must make the uncertainty and the experimental work legible to a non-specialist reviewer.
The most common evidence gaps fall into two buckets:
- Technical proof (what was uncertain, what was tried, what changed)
- Financial proof (who spent time, on what, and how that maps to costs)
Why Is Technical Narrative Often the Weakest Part of R&D Claims?
A weak narrative usually reads like marketing copy:
- “We built an innovative platform…”
- “We used AI to improve efficiency…”
- “We created a cutting-edge solution…”
None of that proves technological uncertainty or systematic work to resolve it. Strong narratives explain:
- Baseline: what competent professionals already know / what existing tech can do
- Uncertainty: what could not readily be deduced at the outset
- Approach: what hypotheses were tested, what alternatives were tried, what failed
- Outcome: what new capability was achieved (advance), and what knowledge was generated
If you want a practical “shape,” use this four-part structure per project:
- The objective (technology goal, not product goal)
- The uncertainties (2–4 precise uncertainties)
- The method (experiments/iterations, failures, and decision points)
- The advance (what’s demonstrably improved/new in science/tech terms)
What Supporting Documentation Does HMRC Expect to See?
HMRC does not publish a single “required evidence list,” but strong claims are typically backed by contemporaneous artefacts that show uncertainty and experimentation. For tech companies, these can include:
- System design and architecture docs (including revisions that reflect failed approaches)
- Version control history (Git commits, PRs, issue threads, useful as corroboration, not as the narrative itself)
- Test evidence: benchmarks, load tests, regression results, model evaluations
- Incident and performance data: latency/error metrics before/after and what changed technically
- Prototypes/POCs and documented outcomes (including negative results)
- Security and compliance evidence where it drives technical constraints (e.g., cryptographic choices, threat models)
A simple internal best practice: keep a monthly “R&D evidence pack” per qualifying project with 5–10 bullet highlights and supporting links. It saves huge time at year end.
How Does Poor Cost Allocation Undermine Otherwise Valid Claims?
Cost allocation is where many claims become indefensible. Even if the project qualifies, HMRC can challenge:
- Time apportionment (e.g., claiming 100% of a developer’s time without evidence)
- Role eligibility (e.g., including sales/marketing in technical time)
- Cost categories (misclassifying overheads or including disallowed costs)
To reduce risk, treat apportionment like an audit trail:
- Tie named staff to named projects
- Document what work they did (technical contribution)
- Use a consistent, evidence-based method (timesheets, sprint allocations, engineering manager attestations with supporting tickets)
Remember: the goal isn’t to “maximise” a claim, it’s to make a claim HMRC can accept without doubt.
What Role Does the Additional Information Form Play?
The AIF is not optional paperwork, it’s a gatekeeper. HMRC’s guidance is explicit: the AIF must be submitted before or on the same day as the CT600, and if the CT600 is submitted first, the claim will be rejected (HMRC may remove it from the return).
Practical implications for founders:
- Build a submission checklist that enforces “AIF first, CT600 second.”
- Ensure consistency between AIF, narrative, and cost schedules.
- Keep a PDF snapshot of what was submitted and when.
How Can Founders Reduce the Risk of Delays, Queries, or Compliance Issues from HMRC?
If you want fewer delays and fewer questions, design your R&D process around clarity + consistency + evidence. The goal is to make your claim easy to validate.
A founder-friendly way to think about this: HMRC risk checks often test whether your claim is:
- coherent (story matches numbers)
- specific (project detail, not generic templates)
- supported (evidence exists and is contemporaneous)
Why Does Early Documentation Matter for R&D Claims?
Early documentation reduces “retro-fitting” risk. When teams rebuild the story 10–12 months later, they naturally:
- forget failed approaches (often the strongest evidence of uncertainty)
- overgeneralise the narrative
- mis-estimate time spent across projects
A simple operating rhythm that works:
- At sprint end, tag R&D tasks with an “R&D candidate” label
- Once a month, engineering + finance do a 30-minute review:
- Which uncertainties were tackled?
- Which experiments ran?
- Which roles contributed?
- What evidence do we have?
This converts R&D into a manageable governance habit instead of a high-stress annual scramble.
How Should Startups Prepare for HMRC Enquiries or Compliance Checks?
Prepare an “audit-ready pack” for each claimed project:
- 1–2 page project narrative (baseline → uncertainty → method → advance)
- evidence index (links to repo, docs, tests, metrics)
- cost schedule (staff list, role, % apportionment, rationale)
- cross-check notes ensuring AIF matches narrative and numbers
HMRC queries often zoom in on eligibility and apportionment. Being able to respond quickly with structured evidence can reduce disruption and avoid long back-and-forth.
When Should Tech Startups Seek Specialist R&D Advice?
Seek specialist R&D tax advice when any of these are true:
- Your work involves complex software, AI/ML, deep infrastructure, cryptography, or regulated architectures.
- The claim is financially material to runway.
- You’ve received HMRC queries before, or expect them due to claim size.
- Your projects have nuanced boundaries between routine dev and genuine uncertainty.
A specialist’s value is translation and defensibility: mapping complex technical reality to the HMRC/DSIT criteria with the right tone, detail level, and evidence logic.
What Are the Common Red Flags That Trigger HMRC Investigations?
HMRC doesn’t publish a definitive “trigger list,” but these patterns frequently increase scrutiny:
- Vague, template-like narratives that could apply to any company
- Claims where staff costs look unusually high relative to revenue or headcount without explanation
- Inconsistencies between the AIF, technical report, and CT600 numbers
- Claims that read like marketing rather than technical documentation
Best practice: run a pre-submission “risk scan” and tighten anything that looks generic or unsupported.
Which Project Types Are Most Likely to Meet HMRC’s Definition of Qualifying R&D?
Not all tech work qualifies. The best candidates tend to share three traits:
- a clear technological uncertainty
- systematic experimentation (including failed attempts)
- a demonstrable advance in capability or knowledge
Do Software Development and AI Projects Qualify for R&D Tax Relief?
Yes, software can qualify when it meets the DSIT/HMRC criteria for technological uncertainty and advance. Examples that often qualify (when genuinely uncertain and evidenced):
- Novel approaches to performance (e.g., low-latency streaming under constraints)
- Concurrency and consistency problems not readily solvable with known methods
- New algorithms or optimisation techniques
- AI/ML where the uncertainty is technical (data constraints, training instability, deployment performance, model drift control), not merely “we used an existing library”
Where teams go wrong: describing “we implemented ML” without explaining what was uncertain, what alternatives were tested, and what advance was achieved.
How Does HMRC View Platform Development, APIs, and Infrastructure Work?
These can qualify if they go beyond routine engineering. Strong examples include:
- Architecting a platform to meet non-trivial scalability or resilience targets with uncertain feasibility
- Building bespoke APIs to integrate incompatible systems where the solution isn’t straightforward
- Overcoming latency, throughput, or reliability constraints through experimentation
Likely non-qualifying: standard cloud migrations, conventional integrations, “lift-and-shift,” and routine DevOps automation unless it involves genuine uncertainty and advance.
Are Data, FinTech, and SaaS Projects Commonly Accepted?
They can be, especially where technical constraints create uncertainty:
- Data engineering challenges at scale (processing, deduplication, lineage under constraints)
- Security and privacy engineering (novel encryption approaches, key management constraints)
- Regulated environments where compliance requirements force non-standard technical solutions
Context you can use to support why software R&D is significant in the UK: the ONS reports software development is a major contributor to business R&D performed in the UK.
What Types of Tech Work Are Commonly Rejected?
Work is often rejected when it is routine or doesn’t show uncertainty/advance, such as:
- Cosmetic UI/UX redesign
- Routine bug fixes and maintenance
- Standard upgrades (framework version bumps, dependency updates)
- Configuring off-the-shelf software in a typical way
A simple test: if a competent professional could readily produce the solution using established methods with little uncertainty, it’s unlikely to qualify.
How Should Costs Be Calculated and Allocated to Strengthen R&D Claims?
Think of costing as a story in numbers. HMRC should be able to trace:
project → activities → people → time → cost
Your cost methodology should be consistent, documented, and repeatable across periods.
Which Staff Costs Typically Qualify for R&D Tax Relief?
Common qualifying staff cost categories (subject to scheme rules and eligibility) include:
- gross salaries/wages
- employer National Insurance contributions
- employer pension contributions
But the critical point is apportionment: only the portion of time that relates to qualifying R&D activities should be included.
A practical approach for early-stage startups:
- Use sprint allocations + engineering manager sign-off
- Keep a quarterly review to avoid year-end guesswork
- Maintain a “role eligibility” note explaining why each role contributes to R&D (e.g., backend engineer vs product marketer)
How Are Subcontractor and Externally Provided Worker Costs Treated?
Treatment depends on the scheme (SME vs RDEC and later reforms) and statutory rules in force for the accounting period. Since reforms, overseas subcontracted costs are often excluded unless specific exemptions apply, and the details matter.
Primary technical reference: HMRC’s internal guidance is in the Corporate Intangibles Research and Development Manual.
Founder takeaway: subcontractor eligibility is now high-risk if you haven’t checked the current-period rules carefully.
What Non-Staff Costs Can Strengthen or Weaken a Claim?
Depending on the period and rules, non-staff categories can include items like:
- consumables used in R&D
- cloud computing and data costs (where allowed and correctly apportioned)
- software licences used directly for R&D work
Where claims weaken:
- bundling general cloud spend without linking it to R&D workloads
- including broad “overheads” without a defensible method
- failing to separate routine BAU from experimental R&D environments
A strong method is to tag and evidence R&D-specific environments (projects, accounts, cost centres) so apportionment is obvious.
How Can an Evidence-Led Approach Improve Claim Approval Rates?
An evidence-led approach means you build the claim from proof outward:
evidence → narrative → numbers, not the other way around.
This improves approval likelihood because it reduces ambiguity and shows good governance.
How Should Technical and Financial Teams Collaborate on R&D Claims?
High-quality claims are cross-functional. A workable model:
- Engineering owns the “what was uncertain and what we did”
- Finance owns “how costs map to activities”
- Leadership owns “governance and consistency across submissions”
Set a single shared “source of truth” folder with:
- project narratives
- evidence index
- cost schedules
- AIF draft responses
- submission timestamps and confirmations
What Does a “HMRC-Ready” R&D Report Look Like?
A defensible report is:
- specific (project names, dates, objectives, uncertainties)
- written in clear technical language (no marketing tone)
- supported by evidence (documents, metrics, experiments)
- consistent with the AIF and the CT600 numbers
If your report could be swapped with another company’s report without anyone noticing, it’s too generic.
Common R&D Claim Mistakes vs HMRC Expectations
| Common Startup Mistake | HMRC Expectation |
| Vague claims of “innovation” | Clear explanation of technological uncertainty and the advance sought |
| Claiming all developer time | Evidence-based time apportionment aligned to qualifying activities |
| Generic narratives | Project-specific technical detail supported by contemporaneous records |
| Filing CT600 before AIF | Submit AIF first; otherwise claim may be rejected/removed |
Conclusion
R&D tax relief is still one of the most valuable non-dilutive funding mechanisms available to UK tech startups, but it now demands a higher standard of evidence, disclosure, and cost discipline. The founders who succeed consistently are not the ones who “write better claims” at year end, they are the ones who embed R&D governance into how they build: document uncertainties, preserve experimental proof, and allocate costs in a way HMRC can validate quickly. If you want to strengthen your next claim under current HMRC rules, consider working with advisers who understand both the technical substance of software R&D and the compliance mechanics (AIF sequencing, claim notification rules, and defensible apportionment). Learn more about oursupport for UK tech founders here.
FAQs
How long did HMRC take to process R&D tax relief claims in 2025?
Processing times varied, but compliant claims are often processed within several weeks, depending on HMRC workload and risk assessment. If a claim is selected for enquiry, timelines can extend significantly. (HMRC does not publish a single guaranteed processing SLA for R&D claims.)
Can a pre-revenue UK startup still claim R&D tax relief?
Yes, pre-revenue companies can still qualify if they meet the relevant scheme criteria and have qualifying R&D costs. Loss-making SMEs may be able to surrender losses for a payable credit, subject to the rules applicable to that period.
What’s the deadline for making an R&D tax relief claim?
R&D tax relief claims generally must be submitted within two years of the end of the relevant accounting period, in line with Corporation Tax amendment windows and HMRC requirements.
What happens if the Additional Information Form is not submitted correctly?
HMRC guidance states the AIF must be submitted before or on the same day as the CT600 (and if both are submitted the same day, the AIF must be submitted first). If the CT600 is submitted first, the claim can be rejected/removed.
Can overseas developer costs be included in an R&D claim?
Rules have tightened in recent years. Overseas subcontracted R&D costs are often excluded unless specific exemptions apply for the accounting period and circumstances.