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The operational gap in R&D Tax: Where good claims break down

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The global stage of innovation is once again shifting, and where Silicon Valley once dominated over all, other equally powerful regions are rising up to challenge it.

Sadiq Khan recently spoke out on the dynamic politics in the US and claimed it was a key reason why tech talent and VC is being driven to the UK in competition against Silicon Valley.

As more investment and talent are drawn to the UK, the volume of R&D activity carried out here will only grow, and with it, the number of businesses turning to R&D tax relief to fund that innovation.

But under the watchful eyes of HMRC, whose growing scrutiny is felt by all across the industry, the need for robust claims is more important than ever.

R&D activity must be properly captured and evidenced, yet while the underlying innovation is real and substantive, the claims can run into trouble.

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If the documentation was incomplete, the evidence was gathered retrospectively in a rush, and the finance and technical teams had never properly aligned on what needed to be captured or when, the claim is left operationally weak.

This is where strong, solid R&D activity is undermined by the operations and processes behind the claim.

In my experience, the most common point of failure is rarely businesses’ technical knowledge. There’s often a disconnect between those individuals conducting R&D and the people preparing the claim. If we think about it, technical and engineering teams do not naturally think in the language of tax legislation – and why should they?

It’s not in their wheelhouse, and frankly, it isn’t a requirement of their day-to-day role. Equally, finance and tax functions often do not have the depth of technical understanding needed to translate innovation activity accurately into a compliant claim. This gap can leave the whole process vulnerable.

The challenge that businesses face is compounded by poor documentation and reactive evidence gathering, which remain some of the biggest operational weaknesses across the market. HMRC has been increasingly clear that it expects evidence captured at the time the R&D activity occurs, not reconstructed after the financial year has closed, as this leaves it open to incorrect recall and inaccuracies.

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My advice to any business approaching its R&D claim in 2026 would be listen to HMRC, take it seriously and be proactive. Think about your R&D activities and how you are recording them throughout the year, not just at year end.

The R&D tax ecosystem has undergone substantial change in recent years, with the introduction of the merged scheme, changes to rates, new compliance requirements, and all under the shadow of HMRC’s growing scrutiny.

Its approach is far more rigorous, more targeted and it’s more likely to release enquiries into claims today than it was five years ago. The merged scheme is designed to bring greater consistency and clarity for businesses making claims, but in the short term, navigating HMRC’s expectations requires more robust operational processes.

The critical word is quality. For today’s claimants, this means ensuring claims are compliant with legislation and carry minimal risk of enquiry. It also means the quality of service, so making it as easy as possible for teams to provide the information needed for the claim, ensuring nothing is missed and maximizing the claim from a compliance perspective.

Those two things should work in tandem to successfully create a robust claim that doesn’t demand unnecessary workload from those involved and ultimately produces a better outcome.

Establishing the conditions to claim with confidence

As a means of making the claims process easier, businesses have turned to AI. There are well-documented, tangible benefits to deploying this technology across the claims process, but only when it’s tightly cornered off with guardrails. Yes, AI tools can make the compilation of claims faster and smoother, but when it’s used to write the narratives and technical descriptions, there’s a greater risk of inaccuracies, and it’s something that HMRC is cracking down on. The technology is only as good as the underlying data and the human judgement applied to it.

But we’re clearly heading in the right direction. HMRC’s new levels of scrutiny are ultimately there to set a better standard for R&D claims and filter out those with false claims. We exist in a volume-driven era, where the focus has previously been to build and submit claims quickly and at scale, rather than prioritizing quality. The UK has so much to offer when it comes to innovation, and the shifts taking place reflect a broader maturing of the market as we cement our place on the global stage.

Any business destined to become the foundation of the country’s global success is investing their own R&D processes, giving their innovation the backing it deserves to enable cyclical investment from R&D tax relief. We know the operational gap is where good claims break down, so closing it is where the real competitive differentiation now lies.

This article was produced as part of Tech Radar Pro Perspectives, our channel to feature the best and brightest minds in the technology industry today.

The views expressed here are those of the author and are not necessarily those of Tech Radar Pro or Future plc. If you are interested in contributing find out more here: https://www.techradar.com/pro/perspectives-how-to-submit

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