Record keeping requirements for claiming R&D Tax Relief
The good news is there are no formal record-keeping requirements when claiming R&D Tax Credits.
HMRC acknowledge that all businesses operate in different ways to one another and that the style and transparency of their record-keeping will reflect this.
They also accept that businesses claiming for the first time are unlikely to hold fully audited records to support their compliant endeavours and therefore you are not prevented from claiming if you have no specific record of the amount of time your staff spent working on potentially-qualifying projects.
However, you are expected to provide your best estimates of staff time engaged and documentary evidence e.g. payroll reports, invoices etc. in support of the costs incurred for your early claims, on the understanding that future claims are adequately supported with the appropriate record-keeping.
So what constitutes good record-keeping practice for R&D Tax Credits?
Whilst there are no formal guidelines as to the type of records required when claiming R&D Tax Credits, there is an expectation from HMRC that claimants will maintain records such that they provide adequate evidence to support the costs being reclaimed. The completeness of such records increases in larger companies, as well as in smaller ones who claim regularly.
On the flip-side, HMRC do not insist upon claimants devising and maintaining arduous record-keeping protocols where there is no existing business requirement to do so. The use of time-sheets is frequently recognised as a simple means of recording the allocation of staff to a particular project, but if this not appropriate to your particular way of working, the assignation of project codes can also provide a robust solution.
Whichever approach you decide, the fundamental objective is to adopt a real-time methodology in your record-keeping in respect of claiming for R&D.
To make things a little easier, the legislation is clear in defining that the point in time at which R&D begins is when you start to ‘seek to achieve an advance in science by overcoming a technological uncertainty’. So when you next embark on a task where the outcome is unclear, make a note of the individuals involved, the amount of time they’re engaged and any materials they use, as these costs may contribute to your next claim and the more confident that you can be in the costs associated with your claim, the greater the opportunity to maximise its value, whilst minimising the prospect of an HMRC enquiry.
So whilst the implementation of accurate record-keeping processes is important, the precise format and detail may vary from sector to sector, and from business to business. Nevertheless, whatever form your records take will not detract from the fact that they will help us to help you in claiming your R&D Tax Credits.
HOW CAN WE HELP?
It can be challenging to submit an R&D Tax Credit claim to HMRC’s exacting standards.
At Innovation Tax, our team of experienced sector specialists, technical and quality assurance experts and tax professionals will help you identify the full extent of your qualifying activities and expenditure and work with you to ensure the correct information is included in the claim documentation, giving you peace of mind that your claim is robust, maximised and defendable.