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In this article, Dr. Chrysi Karagiannaki​, R&D Tax Consultant at FI Group UK, explains how CFOs and finance leaders can prepare R&D tax claims that are audit ready from the moment they are filed, ensuring that evidence, documentation and responses are already in place when HMRC begins its review.

How to build R&D tax credit claims that can withstand an HMRC enquiry: the defence starts before submission

Larger claim values attract questions. Build your claim so the defence is already written. Maintain evidence throughout the project lifecycle and structure your claim pack to match HMRC’s expectations.

Why UK businesses are needing to prepare for HMRC R&D Tax Enquiries

HMRC’s compliance activity has intensified. Fewer claims are being filed, and those that are submitted tend to be larger and better evidenced. Where a short narrative once sufficed, HMRC now expects detailed technical explanations, contemporaneous logs, and data that prove how uncertainty was tackled and how costs were traced.

For CFOs, adopt an enquiry-first mindset. Design your documentation and cost models as if an HMRC officer were sitting in your monthly project review.

The three-part approach to enquiry readiness

1) Maintain experiment logs, decision trees and failure reports

• Record the technological uncertainties and the experiments designed to overcome them.
• Keep structured decision trees that show options tested and why each failed or succeeded.
• Capture failures and iterations, not only the final outcome. HMRC looks for the experimental process, not product milestones.
• Store logs in a central evidence repository with timestamps, authors and links to artefacts such as code, data, prototypes or lab results.

Outcome: you can evidence the scientific or technological method behind each project in your AIF, not just its output.

2) Tie ledger lines to specific tests, not generic cost centres

• Link every cost line to a project and a test or experiment where possible.
• Use project IDs in timesheets, purchase orders and subcontractor invoices.
• Reconcile costs monthly from ledger to project, especially staff time, EPWs, software and consumables.
• Explain any apportionment with written rationale and retain the working papers.

Outcome: a claim pack that reads like an audit trail, not only a spreadsheet.

3) Pre-draft responses to the 10 most common HMRC questions

When an enquiry arrives, time is tight. Pre-draft concise, evidence-backed answers so you can respond within days.

The 10 questions you should prepare for

1. What was the technological uncertainty you sought to overcome?
2. What baseline knowledge existed before the project started?
3. What experiments or approaches were tried, and why were they necessary?
4. How did you determine that the outcome was not readily deducible?
5. Which competent professionals led or supervised the work?
6. How did you measure and record time spent on R&D?
7. How were subcontractors or EPWs engaged and directed?
8. How did you ensure costs were apportioned fairly between R&D and routine work?
9. Were any grants or subsidies received, and how were they treated in the claim?
10. What quality control process checked accuracy and completeness?

 

Asset 1: sample response pack index

Section	Content	Evidence attached	Owner
1. Cover letter	Claim overview and scope	Signed by CFO	Head of Tax
2. AIF copy	Submitted AIF and CT600	Submission receipts	Tax Team
3. Project summaries	Uncertainty, experiments, results, failures	Logs, decision trees, test reports	Technical Lead
4. Cost summary	Ledger reconciliation, apportionment notes	Extracts, time and cost records	Finance Manager
5. Subcontract and EPWs	Contracts, statements of work, PAYE checks	Payroll evidence, SoWs	Procurement
6. Grants and subsidies	Funding tracker, grant letters	GL tags, subsidy memo	Finance Manager
7. Supporting evidence	Photos, prototypes, code repositories	Linked folder index	Engineering Lead
8. Governance	Notification register, mock enquiry notes	Calendar, approvals	CFO
9. Response crib sheet	Pre-drafted answers to HMRC top 10	Draft letter templates	Head of Tax
10. Post-submission updates	Clarifications and corrections	Email correspondence	Tax Team

Outcome: a claim pack that HMRC can navigate as easily as your own team.

 

Asset 2: “10 questions”

HMRC likely to ask	Where we answer it	Who owns the response
What was uncertain and why	Project one-pagers, AIF narrative	Technical Lead
What was known at the start	Baseline section in one-pagers	Technical Lead
What experiments were done	Logs, lab notes, code commits	Engineering Lead
How did you record failures	Decision trees, failure reports	Technical Lead
Who led the work	Org chart, CVs, role summaries	HR and Tax
How is time recorded	Timesheets by project ID	Finance
How are costs allocated	Ledger reconciliation	Finance
Who did subcontracted work	Contracts, statements of work	Procurement
Were grants involved	Funding tracker, subsidy memo	Finance
How do you assure accuracy	CFO review, mock enquiry	CFO

Store this crib sheet at the front of your evidence folder. When an enquiry comes in, you already know exactly where every answer lives.

 

Common enquiry red flags and how to avoid them

Red flag	Why it triggers an enquiry	How to fix it
Generic project narratives	Reads like marketing copy, not uncertainty	Re-write using the scientific method and baseline knowledge
Late or missing AIF	Fails the compliance gateway	Build the AIF pack quarterly and submit before the CT600
Blanket apportionment percentages	No evidence for time or cost splits	Use time tracking and tagging to project IDs
No subcontract detail	HMRC cannot confirm who directed work	Add SoWs, control statements and PAYE checks
Unexplained overseas costs	Post-2024 restrictions may apply	Evidence UK location or a qualifying exception
Grants not referenced	Risk of double counting	Tag subsidies and reference them in the scheme memo

 

Governance checklist for enquiry-proofing

Control	Frequency	Owner	Evidence
Experiment logs and one-pagers	Monthly	Technical Lead	Stored in shared drive
Time and cost reconciliation	Monthly	Finance	Ledger export and mapping sheet
AIF draft and review	Quarterly	Head of Tax	AIF version with change log
Mock enquiry session	Twice yearly	CFO, Tax, Technical	Minutes and action log
Evidence pack audit	Annual	CFO	Pack index with version control

Goal: every document you need for an enquiry already exists in your standard operating rhythm.

 

Consultant insight

“An HMRC enquiry is not a crisis if your claim was built to defend itself. The best time to write your defence is before submission, not three months later when someone requests evidence you never captured.” – Dr. Chrysi Karagiannaki, R&D Tax Consultant at FI Group UK, FI Group UK

 

How FI Group supports enquiry defence and readiness

Global Reach. Local Expertise. We help clients design and test audit-ready claims before submission. This reduces risk, speeds up resolution and frees CFOs from reactive firefighting.

• Enquiry defence and response packs tailored to HMRC’s process
• Mock reviews that test documentation and narrative before filing
• Evidence pack design with cloud-based version control
• Cross-border compliance alignment for UK and international R&D claims

R&D tax relief advisory →  | HMRC enquiry defence →  | UK grant competitions → |  Speak to an expert →

FAQs

How common are R&D enquiries now

Enquiry volumes are rising in line with larger average claim values. Complex or poorly evidenced software, manufacturing and science projects are most likely to be challenged.

What is the first thing HMRC asks for

A detailed project explanation, including uncertainties, experiments, results, and evidence of time and cost apportionment. Keep these ready.

Can I prepare before receiving an enquiry

Yes. Build an enquiry pack before you file. A mock review will surface gaps early.

What if my claim is already under review

Respond with structured evidence. Our enquiry defence team can triage your pack, prepare response templates and liaise directly with HMRC on your behalf.

 

In this article, Gabriel Aduculesei, Senior Software R&D Consultant at FI Group UK, explores how finance and technical leaders can build defensible R&D claims for cloud, software and AI projects by replacing estimates with clear, data-backed evidence.

How to evidence cloud, software and data costs in UK R&D tax claims

Software, cloud and data costs are often mis-apportioned. Replace estimates with usage-based evidence that ties licences, services and staff time to specific R&D projects, so your Additional Information Form matches the ledger and stands up to HMRC scrutiny.

The 3-step method in evidencing cloud and data in R&D claims

• Tie licences and cloud services to project IDs in your finance and engineering tools
• Use access logs or tag-based usage to evidence percentages rather than guesswork
• Separate direct activities from QIAs so your claim reflects eligible effort only

Speak to an FI Group expert →

Why this matters in 2025

Cloud and AI workloads have grown, but many claims still rely on blanket percentages. HMRC expects contemporaneous, project-level evidence alongside a clean AIF. For software-led R&D, that means engineering artefacts and usage data that quantify how much of a licence or service was used for qualifying work during the accounting period.

The three-step cloud and data in R&D claims playbook

1) Tie every cost to a project ID

• Create a single project list that matches your AIF. Use the same codes in finance, Jira, GitHub and your cloud billing.
• Enforce a tagging standard in cloud platforms, for example: project=RND-ALPHA1, env=dev|test|prod, team=ml-platform.
• Assign every SaaS licence to a named user with a role and project mapping.

Outcome: costs, users and workloads roll up naturally to AIF projects.

2) Evidence usage with logs, not estimates

• Cloud compute and storage: use tags or labels to filter costs to R&D projects and non-production environments.
• Data platforms: use warehouse or job logs to measure compute used by R&D pipelines and experiments.
• Developer tools: use repository or pipeline usage to weight shared licences.
• Seat-based SaaS: use access or activity logs to attribute time on tool to R&D projects.

Outcome: a measurable R&D percentage for each tool or service.

3) Split direct activities from QIAs

• Direct activities are the hands-on experiments, prototypes and algorithm development needed to resolve technological uncertainty.
• Qualifying Indirect Activities (QIAs) include test rig set-up, data cleaning for experiments and supporting technical management.
• Exclude non-qualifying usage, for example production support or routine data reporting.

Outcome: your claim includes eligible usage only, with a clear audit trail.

Apportionment cloud and data in R&D claims calculator layout (copy and use)

Category	Total spend (£)	Evidence source	R&D filter applied	Apportionment method	R&D %	R&D amount (£)
AWS EC2 and S3	120,000	Cost and Usage Report with tags	project=RND-* AND env IN (dev,test)	Cost filtered by tags, exclude env=prod	62	74,400
Azure ML	45,000	Cost Management export	project=RND-*	Cost filtered by tags and job names	70	31,500
GCP BigQuery	36,000	Billing export to BigQuery	labels.project=RND-*	Query cost by label for R&D datasets	55	19,800
Snowflake	28,000	Warehouse usage history	R&D warehouses only	Credits by R&D warehouse group	68	19,040
Databricks	30,000	Job and cluster logs	Clusters tagged project=RND-*	Runtime hours by tagged clusters	75	22,500
GitHub Enterprise	24,000	Audit and Actions logs	Repos prefixed rnd-	Actions minutes and seats on R&D repos	60	14,400
Jira Software	18,000	Worklogs by project	Projects RND-*	Hours logged to R&D projects	65	11,700

Formula to document in the pack
R&D amount = Total spend × R&D usage % × Period overlap % × Eligible activity %

Add a note explaining how each percentage was derived and where the export or report is stored.

Evidence sources for common vendors for cloud and data in R&D claims

Vendor or tool	Where to get evidence	What it proves	Tip to keep it clean
AWS	Cost and Usage Report, tag compliance	Cost by tag, service and period	Block untagged resources in dev and test accounts
Azure	Cost Management exports, Resource Graph	Cost by tag and resource group	Use Policy to enforce tags on creation
GCP	Billing export to BigQuery, labels	Cost by label and project	Enforce labels through templates
Snowflake	QUERY_HISTORY, WAREHOUSE_LOAD_HISTORY	Credits by warehouse and query	Route R&D workloads to R&D warehouses
Databricks	Cluster and job run logs	Runtime hours by cluster or job	Tag clusters by project and environment
GitHub	Audit log, Actions usage, repo list	Seats and Actions minutes by repo	Prefix R&D repos and teams consistently
GitLab	Pipeline minutes, group usage	CI minutes and user activity	Group R&D projects under a single namespace
Jira	Worklogs and issue exports	Hours to project and role	Make worklog mandatory for R&D issues
Confluence or Notion	Page history, export list	Technical design and decisions	Link pages to project IDs
M365 or Google Workspace	Admin audit logs	User access and document history	Use shared drives per project to organise artefacts

Store each export in your claim pack with the filename, date and filter settings.

Worked examples of cloud and data in R&D claims

A) Cloud compute apportionment

• Context: 200,000 total cloud spend across dev, test and prod.
• Method: filter Cost and Usage Report to env IN (dev,test) and project=RND-*.
• Result: 120,000 filtered to R&D environments. Remove 10% for non-qualifying support tasks. Claimed amount: 108,000.

B) Seat-based licence apportionment

• Context: 100 developer seats on GitHub Enterprise.
• Method: identify 60 developers committed to R&D repos more than 20% of activity.
• Result: allocate 60% of seat cost to R&D, plus Actions minutes used on R&D repos. Document the query and date.

Common pitfalls and quick fixes

• Blanket percentages: replace with logs and filters saved to the claim pack.
• Untagged cloud resources: enforce tags at creation and quarantine untagged spend.
• Mixing R&D and production: keep non-production environments separate. Evidence the environment filter.
• Missing time evidence: require monthly worklogs for competent professionals tied to project codes.
• No link to AIF: ensure the project list in your AIF matches codes in finance, cloud and tooling.

One-page board template

Company / Period
Projects: [n]
Qualifying spend under review: £[x]m

Method summary
Tagging enforced across cloud and data platforms. Licence attribution based on activity logs. Worklogs tied to project IDs. Calculator applied per category.

Outcomes
Modelled R&D percentage: [y] %
Estimated claimable software and cloud cost: £[z]k
Evidence pack location: [path or SharePoint link]

Risks and mitigations
Untagged spend [risk]. Tag policy enforced [mitigation].
Seat attribution threshold set at [n %]. Audit log stored [location].

Recommendation
Approve evidence method and proceed to AIF drafting for this period.

Consultant insight

“Software claims live or die on traceability. When cloud tags, repos, worklogs and invoices all line up to the same project codes, the AIF writes itself and enquiries are faster to close.” – Gabriel Aduculesei, R&D Tax Lead, Software & IT, FI Group UK

How FI Group helps with digital evidence builds

Global Reach. Local Expertise. We design tagging standards, extract usage evidence, and build calculator models that align with your AIF and ledger.

• Cloud and data evidence builds tied to project IDs
• Apportionment calculators and documentation that can be reused each period
• AIF-ready narratives for software and AI projects
• Mock enquiries and technical response packs

R&D tax relief advisory → | HMRC enquiry defence → | UK grant competitions → |  Speak to an expert → 

FAQs

What counts as acceptable evidence for software and cloud usage

Tagged cloud cost exports, warehouse and job logs, repository and CI usage, and project-mapped time records. Store exports with dates and filters.

Can we claim production environment costs

Generally no. Focus on development and test environments used for experiments and prototypes.

How do we treat AI model training costs

Apply the same method. Tag training runs by project, capture compute hours and dataset lineage, and exclude production inference unless it forms part of qualifying testing.

How do we avoid double counting with grants

Tag grant-funded lines in the ledger. Note the subsidy in your scheme selection memo and calculator.

 

R&D tax relief: AIF, claim notification and technical evidence standards CFOs must meet to avoid HMRC enquiries

AIF first, CT600 second: the CFO rule for audit-ready R&D claims

Many UK R&D claims are cut or missed because narratives are weak and apportionment is vague. A defensible claim pairs an airtight Additional Information Form (AIF) with contemporaneous technical and cost evidence. It proves uncertainty, experiments, and results, reconciles time and spend to the ledger, and lands before or on the same day as the CT600.

Why generic filings are costing you

Generic, copy-paste narratives do not meet today’s HMRC standard. Where non-specialist accountants lean on product descriptions or milestone updates, HMRC expects evidence of technological uncertainty, experiment design, outcomes including failures, and clear links to costs and people. On top of that, process failures such as late AIF filing or missed claim notification can invalidate relief outright. The result is value leakage, slower resolutions, and a higher enquiry risk that consumes management time.

Objective for CFOs: treat R&D incentives as a controllable finance function with governance, repeatable evidence, and submission discipline. Your target is audit-ready on day one.

Action 1: run a 15-point AIF gap assessment across last year’s claim

A short, sharp AIF gap assessment will tell you where a claim is exposed. Check timing, completeness, project evidence and apportionment. Verify who must pre-notify, whether the AIF went before or on the same day as the CT600, and whether subcontractor and EPW rules were applied correctly.

Fifteen checks to perform now

1. AIF submitted before or on the same day as the CT600
2. Claim notification required this period, diarised, and submitted inside the window
3. Accounting period and period of account aligned and documented
4. Named senior internal technical contact included and contactable
5. Project list complete, with clear scope boundaries
6. For each project, a concise statement of technological uncertainty
7. Evidence of baseline knowledge and why off-the-shelf solutions were insufficient
8. Experiment plans, iterations, and failures captured, not just outcomes
9. Clear split of direct versus qualifying indirect activities
10. Time records mapped to project IDs and reconciled to payroll
11. Cost apportionments explained and reconcilable to the ledger
12. Subcontract scopes linked to uncertainties, not generic deliverables
13. Externally provided workers checked for UK PAYE and Class 1 NIC treatment
14. Any overseas activity assessed for eligibility or exception, with evidence
15. Grants and subsidy recorded at line level to avoid double counting

Outcome: a red-amber-green view of every control you need to file once and file right.

Action 2: replace time estimates with contemporaneous records

Replace blanket percentages with evidence you can show an inspector. Use time coding that mirrors your project list in the AIF. Reconcile payroll to project IDs monthly and store the audit trail with your claim pack.

Practical setup in one afternoon

• Create project codes that match the AIF project list
• Require monthly time entries for competent professionals and supporting staff
• For cloud and software, attach licence IDs or tags to project codes
• Reconcile payroll and licence spend to the ledger, then to projects

Result: credible apportionment and drastically lower enquiry friction.

Action 3: implement monthly engineering write-ups of uncertainties and tests

Engineers should capture uncertainty, experiments, and results as they work. A one-page monthly write-up per project is enough. It proves the scientific or technological method and avoids last-minute reconstructions.

One-page template engineers can use

• Project code and short title
• Uncertainty tackled this month
• Hypotheses and experiments performed
• Results and failures
• Next steps and decisions
• Links to artefacts (lab notes, code commits, test logs, data)

Tip: appoint a technical champion to chase one-pagers on the first working day each month.

The hidden traps non-specialist filings miss

1) AIF timing errors

Filing the CT600 before the AIF risks removal of the claim. Make “AIF submitted” a hard gate in your close calendar. No AIF, no return.

2) Weak project narratives

Product roadmaps and milestone plans do not show uncertainty. You need to set the baseline knowledge, show why outcomes were not known in advance, and document experiments, including dead ends.

3) Subcontract and EPW mis-treatment

The location of activity matters. Supplier addresses do not. Show where the experimental work occurred and who directed it. Check that EPW earnings sit under UK PAYE and Class 1 NIC where required.

4) Overseas activity and exception claims

If any R&D occurred overseas, keep a clear position. Some periods or circumstances have narrow exceptions. You must evidence why work could not reasonably be done in the UK. Cost or convenience is not a valid reason.

5) Grants and subsidy collisions

If you receive grants, tag those costs at source. Show how subsidy was handled to avoid double counting and to pick the right scheme route.

Asset 1: AIF gap scorecard (copy and use)

Control area	Question	Evidence to attach	Status (R/A/G)	Owner	Fix by
Timing	Was the AIF submitted before or on the same day as CT600?	Submission receipts, timestamps
Notification	Did we need to pre-notify and did we do it on time?	HMRC notification reference
Projects	Are all claim projects listed and scoped?	Project list v7, scope notes
Uncertainty	Each project has a clear uncertainty statement?	One-pager per project
Experiments	Do we show methods, iterations, failures?	Logs, test plans, lab notes
Baseline	Is baseline knowledge explained and referenced?	Standards, literature, prior art
Time	Are time records mapped to project IDs monthly?	Exports from time tool, mapping
Costs	Do costs reconcile to ledger and apportionment notes?	Ledger extracts, apportionment calc
Subcontract	Are scopes tied to uncertainties, not milestones?	SoW, CRs, acceptance criteria
EPW	Do EPWs meet PAYE and Class 1 NIC tests where required?	Payroll evidence, contracts
Overseas	Any overseas R&D has a defensible position or is excluded?	Exception evidence file
Software	Cloud and licences tagged to project codes?	Licence IDs, usage logs
Grants	Subsidy tagged at line level and tracked?	Funding tracker, GL tags
Scheme	Scheme choice per project documented and consistent?	Scheme memo
Review	Mock enquiry performed on two projects?	Q&A pack, action log

Asset 2: evidence pack index template

Section 1. Company and period

• Legal name, UTR, SIC, period dates
• Senior internal technical contact details

Section 2. AIF submission

• AIF PDF and submission receipt
• CT600 submission receipt and timestamps

Section 3. Projects

• One-page summary per project: uncertainty, experiments, results
• Links to artefacts: lab notebooks, code repositories, test reports, datasets

Section 4. People and time

• Project-mapped timesheets
• Payroll extracts and reconciliation to projects

Section 5. Costs and apportionment

• Ledger extracts by category
• Apportionment methodology and calculations
• Software and cloud usage logs or tags

Section 6. Subcontract and EPWs

• Statements of Work with uncertainty alignment
• EPW contracts and PAYE evidence
• Location statements for activities

Section 7. Grants and subsidy

• Grant offer letters and drawdown schedule
• Subsidy tagging in the ledger
• Scheme selection memo and interaction notes

Section 8. Governance

• Notification register, reminders, approvals
• Mock enquiry pack and actions closed

Store this pack with read-only permissions. Version control major updates.

Your compliance calendar for the close pack

Control	When	Owner	Evidence
Confirm claim notification requirement	Month 1 after year end	Finance Manager	Notification register and deadline
Capture engineering one-pagers	Monthly	Technical Lead	One-pager per active project
Reconcile time and costs to projects	Monthly	Financial Controller	Timesheets, ledger extracts
AIF draft review	Quarterly	Head of Tax	AIF pack vX with project list
AIF sign-off gate	Pre-CT600	CFO	Signed checklist, submission receipt

How to brief your engineering leads today

• Keep write-ups short and factual
• Focus on uncertainties, experiments, and outcomes
• Link to hard evidence such as commits, test reports, or data
• Do not try to make the work look “commercial.” HMRC is testing the scientific or technological method, not marketing milestones

FI Group tie-in: audit-ready claims, faster outcomes

Global Reach. Local Expertise. We build claims that meet today’s evidential bar, then integrate grants and international incentives without tripping subsidy rules.

• Audit-ready technical build aligned to AIF requirements
• Enquiry defence upgrade with response packs and mock interviews
• Scheme and subsidy orchestration across SME, RDEC and grants
• Cross-border structuring where projects span jurisdictions

Speak to an expert → | R&D tax relief advisory →  |  HMRC enquiry defence → | UK grant competitions → 

FAQs

What is the fastest way to strengthen a weak claim?

Start with a 15-point AIF gap assessment, enforce a pre-CT600 AIF gate, and implement monthly engineering one-pagers plus project-mapped time coding.

Do we need an AIF every year for ongoing projects?

Yes. Treat each accounting period as a fresh submission. Update narratives, evidence and costs to match the period.

How do we prove apportionment fairly?

Use contemporaneous time records, cloud or software usage logs, and a reconciliation from ledger to project code. Document the method in the pack.

What if part of the work happened overseas?

Keep a clear position. Either exclude it or, where a narrow exception could apply, compile evidence now. Cost or convenience alone is not sufficient.

HMRC 2025 R&D Statistics Executive summary for CFOs

UK R&D claims fell sharply in 2023–24 while average claim value rose. The data points to a new operating reality, with stricter administration and a shift toward better documented, larger claims. This post converts HMRC’s September 2025 statistics into a quarter-by-quarter action plan you can implement now.

The headline data you need to anchor planning

• Total support: £7.6 billion on £46.1 billion qualifying R&D for 2023–24, both slightly down year on year.
• Scheme split:SME support £3.15 billion (down 29%) and RDEC support £4.41 billion (up 36%).
• Claims:46,950 total claims, down 26%. SME claims fell 31%. RDEC claims fell 5%. Average claim value up 33%.
• Drivers: SME rate cuts, RDEC rate increase to 20%, and mandatory Additional Information Form (AIF) for all claims submitted from 8 August 2023.

What has changed in policy and why your processes must, too

• Rates: SME enhancement cut to 86% and the payable credit to 10% for expenditure from 1 April 2023. RDEC credit increased to 20%.
• AIF is compulsory: the Additional Information Form must be submitted before or on the same day as the CT600, and if the return is filed first HMRC will remove the claim.
• Claim notification: many first-time claimants or lapsed claimants must pre-notify HMRC within a window that starts on the first day of the period of account and ends six months after it. Missing it invalidates the claim.
• Overseas restrictions: for periods beginning on or after 1 April 2024, new limits apply to overseas subcontractors and externally provided workers with narrow exceptions. Plan your project locations and contracts accordingly.

Quarter-by-quarter CFO action plan

Q1. Lock in compliance and governance

Objective: make “notification and AIF discipline” a routine, not a scramble.

• Add “R&D notification due?” to the first month-end close after year end. The window starts day one of the period of account and ends six months after it.
• Require an AIF-ready pack each quarter. The AIF must precede or be same-day as the CT600, and must go first.
• Introduce contemporaneous evidence: time records tied to project IDs, experiment logs, failure reports, and cost apportionment notes.

Q2. Optimise scheme fit and cash flow

Objective: steer projects to the best outcome under today’s rules.

• Merged Scheme for each project, including subsidy and subcontract effects and understand whether ERIS applies to you.
• Stage grant-funded work so subsidy does not taint unrelated work packages. Keep clean cost tagging to avoid double counting in later claims.
• Prepare board papers with impact of the new Merged Scheme.

Q3. Redesign cross-border delivery and contracts

Objective: keep claimable activity in scope as overseas limits bite.

• Restructure work packages so uncertainty and experimental work occurs in the UK where feasible. Align transfer pricing and intercompany charging so costs and benefit sit together.
• Re-paper subcontract scopes to tie deliverables to specific uncertainties and tests, not generic milestones.
• Check EPW arrangements and evidence “qualifying earnings” tests under the new rules.

Q4. Build enquiry resilience from day one

Objective: the claim you file is the claim you can defend.

• Pre-draft responses to the 10 questions HMRC asks first: baseline knowledge, technological uncertainty, experiments, failures, and commercial context.
• Tie ledger lines to experiments and datasets, not just cost centres.
• For groups, centralise R&D claim standards and templates to eliminate entity-by-entity variability that triggers queries.

Consultant insight

“Falling R&D spending is a wake-up call for UK businesses. By combining tax incentives with national and European grants, firms can offset inflationary pressures and keep innovation on track. The key is precise evidence and a portfolio view.”
— Dr Fawzi Abou-Chahine, Funding Director, FI Group UK

Why FI Group

Global Reach. Local Expertise. We pair UK tax and technical teams with a global network to coordinate claims, fix governance, and design cross-border activity that remains compliant.

• Audit-ready AIF and evidence packs
• Scheme modelling and board support
• Cross-border restructuring for subcontractors and EPWs
• Grant + credit stacking without tripping subsidy rules

Speak to an expert 

FAQs

What does HMRC’s 2025 report actually say?

It estimates £7.6 billion of support on £46.1 billion qualifying R&D in 2023–24, with SME support down 29% to £3.15 billion and RDEC up 36% to £4.41 billion, for 46,950 claims in total. Average claim value increased 33%.

Do we really have to pre-notify HMRC?

If you are a first-time claimant or your last claim was more than three years before the end of the notification period, you must pre-notify within the window that starts on day one of the period of account and ends six months after it.

When must we submit the AIF?

Before or on the same day as the CT600. If the CT600 goes first, HMRC will remove the R&D claim and you may not be able to make a valid claim for that period.

Less PE, Fewer Claims: How CFOs Keep R&D Value Flowing During Deal Lulls

Private equity activity has cooled, which reduces new platform acquisitions and slows integrations. That often shrinks first-time R&D claims and delays harmonisation across groups. At the same time, fewer claims with higher average values put a premium on governance, evidence and centralised delivery.

The quick-fire plan of action for CFOs

• Build a mini Centre of Excellence to standardise claims across subsidiaries
• Run pre-deal R&D diligence lite on every pipeline target
• Launch a 90-day post-close harmonisation sprint
• Shift to audit-ready AIF processes and cross-border compliant models

Speak to an FI Group funding expert

The signal behind this play

Deal slowdowns reduce the inflow of first-time claimants and stall evidence upgrades across portfolio companies. A smaller number of larger, better-substantiated claims are getting through. The winners use the lull to tighten controls, centralise standards and bank day-one value when deals do complete.

Action 1: stand up a mini CoE for R&D incentives

A small, central team can protect claim capacity without new deals. Standardise documentation, timing and evidence. Require a single AIF blueprint, a notification register, time-to-project coding, approved subcontract and EPW patterns, and a funding tracker. This keeps claims moving and enquiry-ready across the portfolio.

What to implement

• One AIF template and narrative style for all entities
• Claim notification register by legal entity and period of account
• Time and cost evidence tied to project IDs and reconciled to the ledger
• Pre-approved subcontract and EPW models that meet location and PAYE rules
• Group grants and subsidy tracker to avoid double counting

Action 2: run pre-deal R&D diligence lite on every pipeline target

Bank day-one wins and avoid missed windows. Confirm whether the target must pre-notify this period, test scheme fit, scan for overseas work and EPWs, and assess evidence quality. A two-hour review gives deal teams a reliable view of value and risk even if execution slips.

Use this 10-question checklist

1. First-time or lapsed claimant that must pre-notify this period
2. Period of account dates confirmed, including any short or long periods
3. Projects with technological uncertainty and where experiment logs live
4. Time records tied to project IDs and reconciled to payroll
5. Subcontractors used, where experimental work actually occurs
6. Any EPWs and whether earnings fall under UK PAYE and Class 1 NIC
7. Any overseas experimental work that risks ineligibility or needs a QOE file
8. Grants received and how subsidy is tracked in the ledger
9. Scheme route by project after subsidy and subcontract analysis
10. Existing AIF packs and whether enquiries were raised

Action 3: launch a 90-day post-close harmonisation sprint

Remove variability fast. Map projects and people, migrate each entity to the group pack, and prove enquiry readiness on two projects. Lock the filing calendar so the AIF always lands before or on the same day as the CT600.

Day 0–30

• Map projects, people, systems and period dates
• Confirm scheme routes and any grant interactions
• Build the entity-specific AIF pack using the group blueprint

Day 31–60

• Roll out time-to-project coding and ledger reconciliation
• Re-paper subcontract scopes to tie deliverables to uncertainties
• Validate EPW arrangements and UK PAYE treatment

Day 61–90

• Run a mock enquiry on two priority projects
• Fix gaps and finalise the notification register
• Lock the filing calendar and sign-off gates

Useful asset: claim capability maturity by entity

Capability	Level 1 Ad hoc	Level 2 Basic	Level 3 Managed	Level 4 Defined	Level 5 Optimised
AIF readiness	One-off, inconsistent	Template exists	Quarterly draft	Single group blueprint	Evidence-linked, audit-ready
Claim notification control	Untracked	Spreadsheet per entity	Central register	Register with alerts	Integrated with close calendar
Time and cost evidence	Estimates	Partial timesheets	Timesheets by project	Ledger reconciled to projects	Automated capture and reconciliation
Subcontract and EPW	Reactive	Vendor-led	Contract review in tax	Standard clauses	Pre-approved models with PAYE checks
Overseas activity	Unclear	Noted informally	Reviewed case by case	Location mapped to claimability	Designed for UK eligibility or QOE file
Grants interaction	Ad hoc	Tag at claim time	Tagged in ledger	Group funding tracker	Optimised stacking with guardrails
Enquiry readiness	After the fact	Evidence on request	Annual mock review	Semi-annual mock reviews	Enquiry-first, version-controlled packs

Target state: Level 4 or higher within two quarters.

Cross-border and scheme design during a lull

Use the pause to redesign workpackages so uncertainty and experimentation sit in the UK entity. Align transfer pricing, subcontract scopes and EPW payroll with the rules. This protects eligibility and keeps the claimable core onshore while maintaining speed across the group.

Practical moves

• Move experimental design, prototyping and testing to the UK where feasible
• Make UK technical decision making visible in documentation
• Keep non-R&D industrialisation outside the claim scope
• Update intercompany agreements to reflect control and risk
• Validate EPW PAYE and Class 1 NIC treatment

Governance calendar you can copy into the close pack

Control	When	Owner	Evidence
Confirm claim notification requirement	Month 1 after year end	Finance Manager	Notification register with window end date
Capture technical logs	Monthly	Engineering Lead	Experiment logs, failures, decisions
Time and cost evidence	Monthly	Financial Controller	Timesheets to project IDs, ledger extracts
AIF draft review	Quarterly	Head of Tax	AIF pack aligned to period dates and scheme
AIF sign-off gate	Pre-CT600	CFO	Signed checklist, CT600 held until AIF filed

From the team at FI Group UK

“Treat R&D incentives like a controllable operating function. When deal pace dips, the winners centralise evidence and governance, fix cross-border issues, and enter the next cycle with clean, scalable claims.”
— Dr Fawzi Abou-Chahine, Funding Director, FI Group UK

How FI Group helps PE platforms and roll-ups

Global Reach. Local Expertise. We bridge HQ strategy and local execution so your group files once and files right.

• Group claim centralisation and CoE playbooks
• M&A diligence on eligibility, scheme fit and AIF gaps
• Cross-border modelling for subcontractors and EPWs, designed for UK eligibility
• Mock enquiries and evidence pack builds across the portfolio

Speak to an expert 

HMRC overseas restrictions: what changed and what CFOs must do

From 1 April 2024, most overseas subcontractor and externally provided worker costs are excluded from UK R&D relief. Only narrow exceptions apply where the R&D cannot reasonably be done in the UK for legal, regulatory, geographical, or environmental reasons. The result is simple. Restructure work packages, contracts, and EPW arrangements so qualifying activity sits in the UK.

What are the key points CFOs need to grasp?

• Overseas costs now fail unless a strict exception is met.
• The merged regime uses common expenditure rules for both the merged RDEC and Enhanced R&D Intensive Support.
• Winning finance teams are redesigning projects so uncertainty, experimentation, and decision making occur in the UK.

What overseas research and development costs are excluded after 1 April 2024?

Scope of the restriction

• Subcontracted R&D performed overseas. Not eligible, unless a qualifying overseas expenditure (QOE) exception is proven.
• Externally provided workers (EPWs) based overseas. Not eligible unless earnings are subject to UK PAYE and Class 1 NIC, and any QOE test is met where relevant.
• Cost or convenience does not qualify for QOE. Only genuine legal, regulatory, geographical, or environmental reasons are acceptable.

Effective date the changes in overseas research and development costs will be implemented:

Applies to accounting periods beginning on or after 1 April 2024. Transitional rules move the system to two schemes only, with common expenditure rules.

Claim matrix for overseas research and development costs

Cost type	UK-based activity	Overseas-based activity	Notes
Subcontracted R&D	Eligible if within scope	Not eligible unless a QOE exception applies	The location of the R&D activity determines eligibility.
EPWs (externally provided workers)	Eligible when earnings are subject to UK PAYE + Class 1 NIC	Not eligible unless the EPW meets the PAYE test and a QOE exception applies	Check payroll treatment before claiming.
In-house UK staff costs	Eligible when directly and actively engaged	N/A	Standard rules continue under the merged regime.

Tip: “Supplier address” does not decide eligibility. The facts of where experimental work occurs, and how it is controlled and evidenced, do.

The CFO playbook: five steps to stay compliant and protect value

1) Re-engineer work packages to keep uncertainty in the UK

• Move experimental design, prototyping, testing, and analysis to the UK entity wherever feasible.
• Use overseas teams for non-R&D deliverables or industrialisation after the uncertainty is resolved.
• Make the UK technical lead’s decision making explicit in documentation. Keep experiment logs, design rationales, and failure reports.

2) Fix EPW arrangements

• Confirm that EPW earnings are operated under UK PAYE and Class 1 NIC. If not, do not assume eligibility.
• Consider transitioning critical contributors to UK employment or UK-based EPW status that meets the PAYE test.
• Implement contemporaneous time evidence linked to project IDs.

3) Re-paper subcontract scopes

• Tie each deliverable to specific technological uncertainties and planned experiments.
• If any element truly cannot be done in the UK, evidence the QOE reason. Examples include permits, regulatory barriers, environmental conditions, or unique geography.
• Make the UK entity’s direction and acceptance criteria clear in the statement of work.

4) Align transfer pricing and intercompany flows

• Keep costs and the economic benefit in the same UK entity where the qualifying R&D occurs.
• Update intercompany agreements so control, risks, and benefits reflect the contracting-out rules.
• Avoid structures that leave the UK entity with little substantive control over the experimental work.

5) Synchronise with AIF and claim notification

• The Additional Information Form (AIF) is mandatory and must be submitted before or on the same day as the CT600. Build AIF-ready narratives as you restructure.
• If you are a first-time claimant, or lapsed for three years, diarise the claim notification in the period-of-account window. The window begins on day one of the period and ends six months after it ends.

Risks to watch and how to mitigate

Risk 1. Assuming vendor invoices equal eligibility

Mitigation: Prove where the experimental work happens, who directs it, and how the uncertainties are resolved.

Risk 2. PAYE blind spot for EPWs

Mitigation: Confirm payroll treatment early. If not under UK PAYE and Class 1 NIC, change the arrangement or exclude the cost.

Risk 3. Over-claiming under QOE

Mitigation: Evidence legal, regulatory, geographical, or environmental necessity. Cost, convenience, or capacity are not valid reasons.

Risk 4. Misidentified claimant in contracting-out chains

Mitigation: Re-assess who decides to undertake R&D and who bears risk. Update contracts so the right entity claims.

Suggested visuals to embed

• Decision flow for EPWs and subcontractors: UK vs overseas, PAYE test, QOE test, claim or exclude.
• Before and after claimability chart at workpackage level.
• Contracting-out pathway showing who should claim under different commercial models.

If you want, ask for a ready-to-upload asset pack in WebP and PNG formats.

How FI Group keeps cross-border R&D claims in scope

Global Reach. Local Expertise. We design and deliver cross-border R&D operating models that satisfy UK eligibility while preserving speed and scale.

• Workpackage redesign so qualifying R&D sits in the UK
• EPW and subcontract remediation, including PAYE checks and scope rewrites
• AIF-ready technical narratives and evidence packs
• Grants and credits integration so overseas delivery can be co-funded without breaching subsidy rules

Start here → R&D Tax Credits
Already operating globally → Global R&D Strategy
Facing a query → Enquiry Defence

“Global operations do not need global headaches. Your HQ sees the full picture. Your teams feel the local support.”

FAQs

Does the overseas restriction apply to both SME and large companies now?

Yes. The merged regime applies common expenditure rules to both the merged RDEC and ERIS for periods beginning on or after 1 April 2024.

What exactly counts as a valid QOE reason?

Reasons must be legal, regulatory, geographical, or environmental. Cost or convenience is not valid. Keep evidence such as permits, regulator letters, geological constraints, or environmental requirements.

If my period began before 1 April 2024, do the new rules apply?

No. The restriction applies to accounting periods beginning on or after 1 April 2024. Check your period-of-account dates and apply transitional rules where relevant.

Do I still need to submit an AIF?

Yes. The AIF is mandatory and must be submitted before or on the same day as the CT600. If the tax return is submitted first, HMRC will remove the claim.

Why Salesforce’s UK investment matters for AI innovation funding

Salesforce’s expanded UK investment is fresh fuel for AI innovation funding, with London set to anchor product R&D and skills growth across Europe.

Salesforce will invest an additional US$6bn in the UK by 2030, positioning London as its European AI hub and signalling a tailwind for AI innovation funding across the ecosystem. This follows its first London AI centre and doubles a previous US$4bn commitment.

What happened and why it matters

• Salesforce says the UK will be its AI hub for Europe, with London leading product innovation for regional customers.
• Independent analysis projects Salesforce’s UK operations could generate significant economic benefits and hundreds of thousands of jobs by 2028, underscoring potential downstream demand for skills, startups and suppliers.
• UK adoption is already high, with a large proportion of C-suite leaders using AI agents, suggesting rapid enterprise demand for platforms, integrations and responsible AI tooling.
• The company has backed the local ecosystem via Salesforce Ventures investments in UK AI companies and a dedicated accelerator for non-profits.

Why this is news for AI innovation funding: When a hyperscaler concentrates R&D, acquisitions and skills programmes in one city, it typically stimulates adjacent grant activity, procurement pilots and collaborative R&D. Expect stronger calls for trusted data, AI safety and sector-specific applications, and more projects seeking non-dilutive support to accelerate delivery.

Where the opportunities sit

1) Grants for AI projects

UK and European funders continue to run calls suited to software and data-driven innovation, including Innovate UK Funding, BridgeAI, and EU programmes such as the EIC Pathfinder and EIC Accelerator.

2) Skills and adoption funding

Salesforce champions workforce upskilling with national training collaborations. This dovetails with calls that support AI adoption, data infrastructure and trust.

3) Consortium and demonstration pilots

Corporate AI centres create demand for safe deployment, benchmarking and integration. Programmes frequently back feasibility, industrial research and demonstration phases where SMEs partner with corporates or universities.

Fast actions for software CFOs and CTOs

• Turn demand into bids. Map your roadmap to open and upcoming calls, then shape a 12-week bid plan with owners, milestones and risk controls.
• Show readiness to scale AI responsibly. Maintain a GPU utilisation plan, link compute to measurable R&D outcomes and prepare AI standards and safety evidence for bids and procurement.
• Structure non-dilutive finance. Grants and UK R&D Tax Relief can be combined, but you must handle subsidy interactions and cost allocation correctly to avoid double-funding breaches.
• Evidence, evidence, evidence. Maintain project-level technical dossiers, time and cost traceability, and consistent Additional Information Forms to withstand scrutiny.

FAQs

What is AI innovation funding?
Non-dilutive public support, such as grants and R&D tax relief, aimed at accelerating AI R&D, adoption and scale-up. Popular themes include machine learning, natural language processing, computer vision and trusted data.

Can I combine grants with UK R&D Tax Relief?
Usually yes, but structure matters. If a grant is notified state aid the project may need to claim under the RDEC or merged scheme, with strict isolation of costs.

Which schemes should software SMEs watch first?
Start with Innovate UK’s Smart Grants and BridgeAI. Where relevant, consider EU options such as the EIC Accelerator for disruptive scale-ups.

How should we evidence AI activity?
Keep a live technical dossier, map uncertainties to systematic work, reconcile costs to payroll and suppliers, and align CT600 and Additional Information Forms.

Where does Salesforce’s news fit in?
It concentrates AI engineering and enterprise demand in London, with large projected UK economic impact and job creation. This strengthens the case for co-funded innovation.

 

With compliance checks up and rules tighter, R&D tax relief works best when the claim is built during the year, not after it. In-year claiming brings forward cash, lowers enquiry risk, and cuts the admin burden.

What is in-year claiming?

In-year claiming means compiling your R&D tax relief claim as you go, not filing the company tax return before the year end. You still file retrospectively once accounts are finalised. The difference is operational. You capture technical evidence and costs quarterly or biannually while projects are fresh, so the final claim is largely prepared already.

Why this matters in 2025

Three changes define today’s environment.

1. Merged regime and visibility. Periods beginning on or after 1 April 2024 use a merged R&D expenditure credit shown above the line, with a 20% taxable credit that nets to roughly 15% at a 25% corporation tax rate.
2. ERIS for loss-making innovators. Enhanced R&D Intensive Support widens access for loss-making SMEs with R&D intensity at or above 30% from April 2024.
3. Tighter scope and more up-front data. Most overseas subcontractor costs are excluded from April 2024 unless narrow exemptions apply, and the Additional Information Form requires structured data and named individuals for every claim.

Alongside this, checks remain elevated. Around one in five claims face challenge, with enquiries taking close to eight months on average and more than three quarters reduced during review.

The cash flow case

Most companies leave a minimum nine-month gap between spend and benefit because they assemble the claim after year end, then wait for accounts sign-off and processing. In-year claiming compresses that lag. By adopting in-year processes, businesses can often shift R&D tax relief from a 9–11 month wait into a 3 month benefit, depending on how quickly accounts are finalised and HMRC processes the return. You control two levers:

• Accounts timeliness through early close planning
• Claim readiness through evidence-first drafts and reconciled costs before year end

How in-year claiming works: a practical, low-friction workflow

1. Quarterly discovery sprints. Hold short technical interviews while experiments, iterations and failures are fresh. Capture uncertainties, systematic work, and results in project-level dossiers that mirror HMRC expectations.
2. Cost traceability by default. Reconcile qualifying activities to payroll, suppliers and CT600 entries. Maintain a single source of truth for time records, externally provided workers and subcontractor paperwork.
3. AIF-ready data model. Standardise fields that the Additional Information Form requires and keep named sign-offs current.
4. Pre-build an enquiry pack. Before filing, compile technical dossiers, sampling logic, governance approvals and version control so responses can go out quickly without firefighting.
5. Subcontractor sanity check. Confirm connected vs unconnected treatment and location rules for externally provided workers and subcontractors, since overseas costs are restricted from April 2024.
6. Red-team review. Independently challenge eligibility, borderline costs and overseas spend limits to reduce enquiry risk.

Compliance payoff

In-year practices directly address the common reasons for challenge, including poor technical evidence, malapportionment of software or consumables, and mis-treated EPWs or subcontractors. Enquiries now average more than 240 days and over three quarters of claims are reduced during checks, so building contemporaneous evidence is a practical risk reducer.

Common CFO concerns

• “Will this add work?” In practice it shifts work earlier, when recall is better and cost data are easier to reconcile, which reduces rework and back-and-forth at filing time.
• “What about mixed UK and overseas work?” Under the merged scheme and SME rules, most overseas subcontractor costs are excluded from April 2024, so early planning avoids surprises.
• “Does in-year help with enquiries?” It does not stop HMRC opening a check, but it cuts response time and improves outcomes because the evidence base is contemporaneous and consistent.

Actionable steps this quarter

• Appoint a claim owner and book four discovery sprints through the year
• Stand up an AIF-ready data template and map sources once
• Build your standard enquiry pack now rather than later
• Run a subcontractor and EPW rules check, including connected vs unconnected treatment
• Set an accounts close plan that targets filing as soon as practicable after year end
• If you are loss-making and R&D-intensive, model ERIS eligibility at 30% intensity from April 2024

FAQs

What is the effective benefit under the merged scheme?
The credit is 20% taxable and shown above the line. After 25% corporation tax the effective net benefit is roughly 15%.

Do overseas subcontractor costs still qualify?
From April 2024 most overseas costs are excluded, except in narrow circumstances such as unavoidable geography. Plan early.

What is ERIS and who qualifies?
ERIS supports loss-making SMEs that meet an R&D intensity threshold, which reduces to 30% from April 2024.

How long do enquiries take and how often are claims reduced?
Recent figures indicate enquiries average more than 240 days and over three quarters of claims are reduced during checks.

How does in-year claiming reduce risk?
It creates contemporaneous evidence, reconciled costs and an enquiry pack before filing, which shortens responses and raises confidence under scrutiny.