Introduction
R&D tax relief continues to serve as a powerful incentive for businesses to invest in innovation, however, successfully navigating the complexities of the R&D tax relief regime to ensure the maximum amount is claimed requires more than just innovation. It requires good record-keeping and robust systems as well.
Supporting R&D claims with good record-keeping
One of the primary challenges in claiming R&D tax relief lies in providing a detailed account of the “qualifying activities” undertaken. Good record-keeping is essential to establish a clear narrative that showcases the R&D journey a business has undergone. This includes documenting things like the inception of the idea, the challenges faced in undertaking the R&D, the methodologies employed, and the final outcomes
Maintaining good records is also important for accurately quantifying the costs associated with an R&D clam. These records serve as the backbone of any claim, ensuring that companies can obtain the maximum eligible relief. The main expenses in an R&D claim are:
- Employee costs,
- Materials / consumables,
- Software,
- Indirect costs such as utilities and overheads, and
- Subcontracted costs (contracts and invoices are key)
Streamlining the R&D tax relief process with efficient systems
To facilitate good record-keeping, businesses should implement efficient systems that capture and organise relevant information throughout the R&D process. For example, investing in technology that automates data collection and analysis, integrating financial systems with project management tools, and putting in place time-tracking systems will all help companies document every aspect of R&D projects as they progress.
The specific advantages of having good systems in place include the following:
- Improves accuracy of the data and thus minimises the risk of errors in the R&D claim submission(s),
- Streamlines the process of compiling evidence for the R&D claim(s), and
- Makes it easier to identify eligible R&D costs and activities.
Defending an enquiry
Having good systems and detailed records not only substantiates the R&D claims, but also provides a transparent trail of evidence that companies can use to defend their position should they be subject to an enquiry from HMRC. This is especially important and topical at the moment given the recent increase in R&D claim enquiries and challenges by HMRC.
Whilst HMRC does not have defined record-keeping requirements for the purposes of claiming R&D tax relief, and it is accepted that the nature and type of record-keeping will naturally vary across different businesses, HMRC does expect evidence of R&D activity to be demonstrated in a company’s records. Best practice is to adopt the best record-keeping possible in a manner that suits the business.
Conclusion
You should take from this that successful R&D claims require more than just innovation; they also require good systems and detailed record-keeping processes that span the entire R&D journey. By having both of these things, companies not only enhance their chances of a successful claim, but also position themselves to maximise the returns on their investments in innovation.
