Why Good R&D Claims Start on the Factory Floor, Not in the Finance Office

Most businesses assume that preparing an R&D tax relief claim begins with gathering financial information. After all, it is a tax incentive, so surely the finance department is the best place to start.

In our experience, that is often the wrong approach.

The strongest R&D claims rarely begin with spreadsheets. They begin on the factory floor, in the design office, in the laboratory or with the software developers working to solve technical problems where the answer is not readily available.

At Momentum Tax Group, this is why we take a technical-first approach. Before looking at the value of a potential claim, we first seek to understand what actually happened within the project, where the scientific or technological uncertainty arose and how the team attempted to overcome it.

By the time a project reaches the finance team, much of that story can otherwise be lost.

The Story Behind the Numbers

A finance team can tell us what was spent.

An engineer can tell us why it had to be spent.

That distinction is crucial.

HMRC is not interested simply in whether a project was expensive. The key question is whether the work sought an advance in science or technology and involved scientific or technological uncertainties that a competent professional could not readily resolve using existing knowledge.

That information rarely appears in an invoice.

It lives in conversations with engineers, production managers, software developers, project managers and technical specialists who were involved in the work from the beginning.

Understanding that technical story first helps ensure that any costs subsequently included in a claim are connected directly to genuine qualifying R&D activity.

Innovation Isn't Always a New Product

One of the biggest misconceptions about R&D tax relief is that companies must invent something completely new.

In reality, qualifying R&D can take place within projects involving improvements to existing products, processes or systems, provided the work involves a genuine scientific or technological advance and uncertainty.

In manufacturing and engineering businesses, for example, this can include work to:

• Modify manufacturing equipment to improve reliability where the solution was not readily deducible.
• Develop new production techniques to achieve tighter tolerances.
• Automate complex manual processes where no proven solution was available.
• Design bespoke machinery to overcome technical limitations.
• Develop software to solve complex operational or technological challenges.

Projects like these often happen quietly within engineering and technical teams. They may be treated internally as simply part of solving a problem or delivering a project and never appear prominently in an annual report.

That is why speaking to the people who actually carried out the work is so important.

Why We Spend Time With Engineers

At Momentum Tax Group, one of the first things we want to understand is not:

“Can we see your accounts?” Instead, we want to know:

“What technical problems were your engineers trying to solve?”

Those conversations can uncover potentially qualifying activity that may not be obvious from the financial records alone.

Our technical consultants spend time understanding:

• What the business was trying to achieve.
• What scientific or technological uncertainties existed.
• Why existing solutions or available knowledge were not sufficient.
• What alternatives were considered.
• What testing, experimentation or development took place.
• What worked.
• What failed.
• What was learned during the process.

These discussions form the foundation of a robust technical assessment and, where the activity qualifies, a technical narrative that accurately reflects the work undertaken.

This is the principle behind Momentum's technical-first methodology: establish the qualifying R&D activity first, then build the financial claim around it.

The Numbers Matter Too

Of course, every successful claim also needs accurate financial calculations.

Relevant categories of qualifying expenditure need to be identified carefully and supported in accordance with the rules applying to the claim period.

But the financial analysis should follow the technical assessment, not lead it.

A large project does not automatically mean a large R&D claim. Equally, a project with relatively modest expenditure may contain significant qualifying technical work.

The important point is that the costs included in a claim should be clearly connected to the qualifying R&D activities identified through the technical review.

Without that connection, figures alone tell HMRC very little.

Good Documentation Doesn't Need to Be Complicated

Many companies worry that they have not kept enough records to support an R&D claim.

In practice, technical teams often create useful evidence during the normal course of a project without necessarily thinking of it as “R&D documentation”.

Depending on the project, this might include:

• Design drawings.
• CAD revisions.
• Production reports.
• Test results.
• Meeting notes.
• Quality reports.
• Prototype records.
• Emails discussing technical problems.
• Photographs of development work.
• Internal project reviews.

Viewed alongside discussions with the competent professionals involved, these records can help demonstrate what the technical challenge was, what approaches were attempted and how the project progressed.

Good evidence also helps create a claim that is more robust and easier to defend if HMRC asks questions later.

Why Our Approach Is Different

Our process starts with understanding the science or technology before calculating the potential tax benefit.

By working alongside engineers, developers and technical teams first, we can assess the underlying activity before linking qualifying work to the associated expenditure.

That helps prevent the claim from becoming a cost-led exercise where the financial figure is established first and the technical justification is built around it afterwards.

Instead, the technical assessment drives the claim.

For businesses and their accountants, this provides greater confidence that the claim reflects the work that actually took place, is supported by a clear evidence-based methodology and has a documented technical rationale behind the figures submitted if HMRC reviews the claim.

R&D tax relief is about far more than costs

It is about scientific or technological advancement, experimentation and overcoming uncertainties where the solution was not readily available to a competent professional.

The finance department plays an essential role in calculating and substantiating the financial side of a claim.

But the real story - the one that determines whether the activity qualifies in the first place - usually starts somewhere else.

It starts with the people solving the technical problem.

And very often, it starts on the factory floor.

About Momentum Tax Group

Momentum Tax Group combines experienced technical consultants, including engineers and sector specialists, with Chartered Accountants to prepare robust, evidence-based R&D tax relief claims. Our approach is straightforward: understand the technology first, assess the qualifying activity, calculate the benefit second and stand behind the work we submit.

Ready to put the technical evidence first?

If your business is undertaking technically challenging work - or you are an accountant looking for a specialist R&D partner - speak to Momentum Tax Group about a technical-first review of your projects. We will help you identify the qualifying activity, connect the evidence to the costs and build a robust, defensible claim.

UK: 028 9140 4030

Email: tax@momentumtaxgroup.com