Much of the existing advise and guidance relating to R&D tax relief focuses on the project narrative requirements of advance, field, uncertainties and competent professional. Whilst it is important that your project contains all of these elements, you will not be able to prove this to HMRC without good record keeping.
Good record keeping is one of the most important elements of any R&D claim. Without the right documentation, it is very difficult to support the project. For example, a report could explain how a company attempted to create a ground breaking piece of software for use in hospitals for medical screenings, which ultimately failed to overcome uncertainties surrounding the accurate detection of certain types of illnesses. However, without the relevant documentary evidence of testing and analysis, it is impossible to say for certain whether any of this work really qualified, or indeed whether the project took place at all.
Of course, this is an extreme example, and most company’s will have recorded their projects in some form. HMRC understands that record keeping varies from claimant to claimant, and provides helpful examples of possible evidence that can support a claim, such as: emails, meeting minutes, and project plans.
Below are some useful tips to think about as you carry out an R&D project:
- Record when your project starts and ends: When you come across a scientific or technological uncertainty, you should make a notes of the date, what the uncertainty is, and how you came across it. Most important of all is to think about why you want to overcome it, as this will lead you to your advance. When you overcome the uncertainty, or you decide the project has failed, make a note of the date again, and how you were able to judge this outcome. For example, have you created new knowledge, or did you decide something was impossible? When you come to claim for the project, you will then be able to easily explain the boundaries of your R&D.
- Recording Research: This might seem like an obvious step, but the detailed recording of your research is essential to building a robust claim. Rather than simply compiling the results, think about the methods you are using, log your progress and reasoning for using certain techniques. This will make it far easier to identify and categorise qualifying expenditure.
- Competent professional’s opinion: One of the biggest sticking points in R&D compliance is identifying whether something is new to a field of science or technology, or whether it is simply new to the company. Involving your competent professional in record keeping and claim construction can help you to answer this question. If you are working with external specialists, it is often a good idea to have them explain the uncertainties they are facing at the time the project is carried out, to avoid having to chase them up later.
- Who is involved?: Make a note of the people involved in the project, both internally and externally. Be sure to include a short description of what they did for the project. This will not only help to build a robust narrative, it will also make the financial side of the claim far easier.
- Staff Time: Whilst HMRC state that claimants do not have to record time, it makes working out wages significantly easier. If you have software that can record time this is an excellent way to prove beyond all doubt that staff percentages are correct. Failing this, timesheets for the project are also very valuable.
- Breaking Down Invoices: It is helpful to be able to see which invoices relate to which project, or parts of projects (such as prototypes). Accounting software can help you to do this.
If you have any questions about record keeping for R&D tax purposes, please feel free to get in contact with us.