The Complete Guide to R&D Record Keeping for UK Tech Startups (2025 Update)

How software and AI companies can build HMRC-ready evidence under the merged R&D scheme

If there has been one major shift in UK R&D tax relief over the past few years, it’s this: HMRC now cares far less about how compelling your pitch deck sounds and far more about the evidence behind your claim.

For tech startups—especially those building software, machine learning models or AI products—that shift can feel uncomfortable. You’re juggling fundraising, shipping features and keeping the product stable. Creating an audit trail for every experiment rarely makes the sprint planning board.

But under the merged R&D scheme and today's tougher compliance environment, robust R&D record keeping is no longer optional. It is the difference between a claim that sails through and one that triggers a long, expensive HMRC enquiry.

This guide explains exactly what records HMRC expects, how long you must keep them, and how to build evidence collection into your existing development workflow without slowing your team down.

What HMRC Actually Wants to See in an R&D Tax Claim

When HMRC reviews a claim, it is trying to answer three core questions.

1. Were you genuinely doing qualifying R&D?

You need to clearly articulate:

• the scientific or technological uncertainty,
• what was known at the time, and
• why a competent professional couldn’t easily solve the problem.

For software and AI teams this might relate to scaling, system architecture, data engineering challenges, non-obvious algorithms or unpredictable performance characteristics.

2. Is there evidence of real experimental work?

HMRC expects to see:

• iterations
• tests
• failures
• design changes
• technical decision-making

A polished description of the final product without evidence of the journey rarely satisfies inspectors.

3. Do the costs genuinely relate to this R&D?

Every staff cost, contractor invoice, cloud charge or material expense must trace back to a qualifying R&D project. If you cannot show that link, HMRC will challenge the claim—even if the project itself is valid.

The Core Evidence Every Strong R&D Claim Needs

In most tech companies, R&D evidence falls into three buckets.

1. Technical Records

These demonstrate the story of the R&D work. HMRC considers any of the following valid evidence:

• Jira/Linear tickets
• Git commits
• Sprint notes
• Design documents
• Architecture diagrams
• Test reports
• Internal research notes
• Prototypes or experimental branches

Individually these look mundane. Together, they show how your team tackled uncertainty and progressed toward a solution.

2. Time Records

HMRC knows engineers don’t spend 100% of their time on qualifying activity. You don’t need minute-by-minute timesheets, but you do need a reasonable basis for your apportionments.

Acceptable evidence includes:

• time codes in your PM tool
• monthly or quarterly allocation statements
• logs created by the technical lead
• sprint documentation showing who worked on which R&D tasks

3. Financial Records

These link R&D activities to the actual spend, such as:

• payroll reports
• contractor invoices
• cloud computing bills
• hardware or software purchases
• grant funding evidence

Your R&D cost schedule should reconcile back to your statutory accounts so HMRC can trace every figure.

How to Embed R&D Record Keeping Into Your Software Workflow

Trying to rebuild a year’s worth of evidence at claim time is painful—and risky. The best approach is to integrate record keeping into normal software development processes.

Use Your Issue Tracker as the Source of Truth

Add simple R&D labels (e.g., R&D – ML Engine, R&D – Scalability).
Encourage engineers to include in the ticket description:

• what the experiment is testing,
• why the outcome is uncertain,
• criteria for success/failure.

This adds seconds to a ticket and saves hours when drafting the technical narrative.

Agree and Document Staff Time Allocations

Revisit quarterly.
Store these in a single, auditable place.
A short memo signed off by the technical lead is normally sufficient.

Tag Spend Properly in Your Accounting System

Use project codes in:

• Xero
• QuickBooks
• NetSuite
• your expense management tool

This prevents the “everything under AWS” problem when building the cost schedule.

Subcontractors, Overseas Teams and Cloud Spend: What You Must Document

These are the areas HMRC scrutinises most heavily in 2025.

Subcontracted R&D

Make sure contracts and SOWs clearly state:

• YOU decide the direction of R&D,
• YOU control technical decision-making,
• YOU bear the technical risk.

Without this, HMRC may disallow the costs.

Overseas Developers

The merged R&D scheme severely restricts overseas costs.

If you are claiming an exception, document why the work genuinely could not be carried out in the UK.

Cloud Computing Costs

You should be able to separate:

• experimental/test environments (R&D), and
• live production infrastructure (not R&D).

Screenshots, tagging rules, and short internal memos explaining your apportionment method are usually enough.

How Long You Must Keep R&D Records (and Why It Matters)

HMRC can open an enquiry up to six years after the end of the accounting period. That means an R&D claim you submit in 2025 may be examined in 2031.

Therefore:

• avoid personal email storage,
• avoid tools with short retention limits,
• use central, backed-up storage.

When HMRC raises an enquiry, they typically request:

• detailed project descriptions
• an expanded cost breakdown
• supporting technical documents
• evidence of staff time and apportionments
• contracts and invoices
• cloud cost analysis

If your evidence is complete, enquiries are usually painless. If not, you’re left trying to reconstruct an R&D claim under pressure.

Frequently Asked Questions About R&D Record Keeping

What records do I need for an R&D tax claim?

Evidence of:

1. the uncertainties,
2. the work done to address them,
3. how costs relate to that work.

How long should I keep R&D documentation?

Keep everything for at least six years.

What evidence does HMRC ask for in an enquiry?

Project descriptions, cost breakdowns, staff lists, time evidence, contracts, cloud invoices and technical documentation.

How strict is HMRC now?

Significantly stricter. Generic claims without evidence are routinely challenged.

Is there an official HMRC checklist?

Not a single one, but the themes are consistent:
clear projects, evidence of work, traceable costs.

How OnTheGo Accountants Helps Tech Startups Build Audit-Ready R&D Claims

At OnTheGo Accountants, we specialise in R&D tax relief for SaaS companies, AI startups and high-growth tech businesses.

Our R&D process includes:

• identifying qualifying projects with your technical lead
• reviewing your existing technical and financial records
• drafting the technical narrative for the Additional Information Form
• mapping staff time and contractor spend to projects
• preparing a fully reconciled and HMRC-defensible cost schedule
• highlighting weak areas before submission (not afterwards)

We prioritise long-term compliance over short-term optimisation.

Next Step

If you’re planning an R&D claim but aren’t confident your records would survive HMRC scrutiny, now is the time to fix that—not when an enquiry letter arrives.

Book a free 30-minute R&D consultation with OnTheGo Accountants.
We’ll review your current documentation and help you build a simple, scalable record-keeping system that fits naturally into your workflow.