LimeLight series – What records do I need?
A question we are often asked is “what records or evidence do we need to support our claim?”. There is no single answer to this question and as you will see it depends on many factors.
In essence, the extent of evidence expected will depend on whether you are new to R&D tax credits or have been claiming for years. It can also depend on the size of your company, your normal record keeping processes, and the industry you are in.
If you are new to R&D tax credits, it is likely that you were not aware of them before. As such, how could you have known to jot down notes and track cost details at the time you were doing the work?
If this is you do not worry. HMRC accept that first-time claimants are unlikely to have detailed contemporaneous records to support their R&D work. They do not prevent you from claiming if you have no specific records of R&D time. What we find is that HMRC take a more relaxed approach to your first claim and accept informed estimates and judgements, provided they appear reasonable.
However, if you are an R&D tax credit veteran, HMRC now expect to see that you are taking steps and making more of an effort to track your project work and the associated costs more closely. Rather than looking back at the end of the year and scratching your head, they now expect to see that you have at least tried to track the information at the time, i.e. make an effort to gather contemporaneous information to support your claim. This is not necessarily a bad thing. We often find when companies start to do this their R&D claims tend to get bigger, as they think about the projects which could qualify at the time and therefore miss less out.
So how detailed should this information be? This will depend on the type of your business, the industry you are in and your current systems.
For example a professional services company, where staff prepare time sheets, could reasonably be expected to modify their time sheet recording procedures to track this time. Alternatively, a small manufacturing company with a handful of staff on the shop floor would not be expected to implement a time sheet system. A common sense approach is required here.
HMRC would expect to see that you have implemented a system which is realistic for your company. They would not expect you to implement an onerous system that will cost you and your staff significantly. The key is to implement an appropriate real-time procedure to identify qualifying R&D projects and associated costs in a form which best suits your business. There is no set record-keeping requirement, and HMRC understand that records kept by individual companies will vary.
The level and method of record keeping adopted will depend on your business and its needs. Whether you adopt a time sheet system, or schedule quarterly project reviews, with notes taken about the nature of work, who was involved and the associated costs, or simply spend an extra few minutes in senior management meetings jotting down some notes. All this can help increase the robustness of your claim and make the whole claim process easier for you.
LimestoneGrey can help advise on good practice in this area. Our chartered tax advisers have years of experience in helping companies make successful and robust R&D tax credit claims. We are here to help you.
The above article is part of the LimeLight Campaign. Over several weeks we are sharing articles to help explain what R&D tax credits are, how they work and the benefits they could have on your business. Please follow us by using one of the links below to ensure you stay up to date with future articles.
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