Record keeping for R&D tax claims

Research and Development (R&D) Tax Relief helps innovative businesses undertaking R&D related activity claim a generous tax deduction or a cash refund from HMRC.

Companies who keep real-time documentary evidence supporting the activities and costs incurred over the life of the R&D project reduce risks and maximise the value of their claim.

THERE IS NO REQUIREMENTS TO KEEP RECORDS SPECIFICALLY FOR R&D TAX RELIEF, SO WHY DO IT?

Good record keeping increases robustness and maximises the value of your Research and Development (R&D) claim.

The ability to support a claim with accurate records means that challenge from HMRC is minimised. And so, the R&D tax credit is likely to be paid out quicker, i.e. more funding for innovation in your bank account!

Larger claimants or those with more than one project would be expected to have a more structured approach to record keeping. The records that you will need to keep will depend on your business and the type of R&D you are performing.

Whatever size your company is, HMRC do not expect you to buy a timekeeping system solely for recording research and development expenditure.

HOW TO ADAPT EXISTING PROCESSES FOR R&D

The key areas to consider are your current projects (and any existing R&D projects), staff time, subcontractors, and consumables. Ideally, time spent on projects can be identified from timesheet records, however this can be a laborious task for your employees. While financial records help support the costs included in an R&D claim, they will not determine whether R&D is taking place. This is why it is important to examine the wider records your business may be keeping.

MEETING MINUTES

MINUTES

Do you hold regular team meetings? Something as simple as reviewing active projects, recording the individuals involved, and any technological challenges, risks and/or future goals, could provide underlying evidence that R&D has taken place.

RING-FENCING COSTS

RING-FENCING

Ring-fencing costs such as materials required in the early stages of development, mean that you may be able to justify including higher costs in the claim. We can work with you to ensure that costs of each classification are recorded under separate ledger codes. This will eliminate any need to retrospectively analyse these costs.

ACCESSIBLE RECORDS

RECORDS

Ensure records or documentary evidence are available and easily accessible. Documents such as internal progress reports, invoices, details of patent applications (which are non-qualifying for R&D), grant applications, or material provided to potential investors, can provide strong evidence that R&D has taken place.

TRACKING THE PROJECT TIMELINE

TIMELINE

As projects develop, you may find you are making notes on challenges and how they were overcome, information about any major changes to the project aims, or any new uncertainties that have been encountered. Material that shows a final product is deliverable in a short timescale may indicate that there was no requirement to resolve a scientific or technological uncertainty.

Our specialist R&D tax team can work with you to find a record-keeping solution that can feed into your existing processes, without having an administrative burden for your employees.

WHAT IS RESEARCH AND DEVELOPMENT (R&D) TAX RELIEF?

Research and Development (R&D) Tax Relief helps innovative businesses undertaking R&D related activity claim a generous tax deduction or a cash refund from HMRC. To receive R&D relief you need to carry out an R&D project that meets the government criteria. Read more

Our Research and Development (R&D) specialists can guide you through the process, minimising costs and maximising claims. Find out if you qualify with our free R&D Assessment

RESEARCH & DEVELOPMENT TAX RELIEF
FAQS

Does my project qualify?

HMRC qualify research and development as overcoming technological and scientific uncertainties or challenges; aiming at achieving a technological and scientific advance that couldn’t be easily worked out by a professional in the field. In our experience, claims are often overlooked because business owners over-estimate the level of innovation required to claim.

How much cash can I get back?

Profit-making SMEs can reduce their corporation tax bill by up to 230%, e.g. an additional £130 deduction on top of £100 spent of qualifying R&D expenditure. Loss-making SMEs can choose to surrender their loss and receive a tax relief by way of a credit – a cash refund paid by HMRC of up to £33,000 for every £100,000 spent on qualifying R&D expenditure.

What costs don't qualify for R&D?

Rent: you can’t claim on rent but you can claim on the utilities used to power the space you are using for R&D. Hosting: often a cost thought to be claimable but is not a qualifying cost, even if you have specific test servers.

How long does the process take?

HMRC generally takes four to six weeks to process a claim after submission.

How do I get my money?

If you are losing money, you can claim back up to 33% of your qualifying development spend in cash. In other words, you can get up to 33p back for every £1 you spend. If you are profit-making, your relief will offset your tax liability up to the amount of tax you owe. A profit making company, startup or SME can even get cash back if its R&D tax credit is greater than your corporation tax liability. In that case, you get the amount you’re owed in R&D tax relief that is greater than your tax liability back in cash. You can get cash back as well if you’ve already paid your corporation tax – often the case when we are filing an amended corporation tax return to cover R&D expenditure for your past financial years.

How many times can I claim?

You can claim R&D tax credits after each financial period (when you submit a corporation tax return) as long as you are creating a new advancement in science or technology.

I use foreign subcontractors from outside the United Kingdom, can I claim on those costs too?

The use of sub-contractors outside the UK need not affect your claim for tax relief.

How far back can I claim?

You can claim back two financial periods. For example, you can claim as late as November 2017 for a financial year that ended November 2015.

Can you work with my accountant?

We often work alongside existing accountants. We will prepare a technical report and a claim statement that your accountant can use when submitting your corporate tax return.

YOUR SPECIALIST R&D TAX TEAM

For further information, or to arrange a free R&D assessment,
please contact Parminder Chattha (Head of R&D)

FREE INTRODUCTORY MEETING

on 0207 309 2222.

Parminder Chattha

Parminder is a CTA qualified Corporate Tax Specialist with significant R&D Tax experience.

Ian Leigh

Ian has advises owner managed businesses, public companies, private clients and trusts on the full range of taxes and has extensive experience of R&D Tax Relief.