Record-Keeping For A Robust R&D Tax Claim

Proper record-keeping is crucial for any R&D tax credit claim. Knowing what projects qualify is half the battle; being able to prove that your project meets the requirements of the scheme means implementing a robust record-keeping practice.

Within the definition of R&D activities, Revenue specifies that:

“It is expected that activities will be undertaken in a planned logical sequence – generally to a recognised methodology – with detailed records being maintained. It is important that the claimant is able to provide records and details of the activities carried on, not just the outcomes.”

With this in mind, companies should prepare in advance of even completing the R&D project to avoid having to find evidence retrospectively.

Why do good records matter?

Good record-keeping is important for Revenue but also essential for companies making claims. For the former, proper records ensure that the scheme is not being abused and that only eligible R&D receives this valuable tax credit from Revenue. For the latter, companies can make sure they aren’t leaving money on the table by capturing all R&D activities and costs.

Supporting a claim during an investigation

Revenue may investigate any claim by opening an Aspect Query, which requires claimants to justify their claim. With a Science Test and an Accounting Test, Revenue examines the content of an R&D tax credit claim both technically and financially.

Good records are a huge time saver when defending a claim. The tight timelines often given by Revenue seem less daunting when you have already prepared your defence.

For this reason, we insist our clients prepare a technical report before submitting a claim; our technical report template covers all of the basics of a valid claim and gathers a list of evidence that claimants can prepare for Revenue, in order to satisfy the Science Test.

Claiming your full entitlement

With a year from the end of your accounting period to make a claim, many claimants can attest to how easy it is to leave a claim to the last minute. It’s easy to get turned around when scrambling to remember what R&D you did in the last year.

This sometimes results in companies missing key projects or costs from their claims, as they slipped the minds of project leads. A strong record-keeping system used during your R&D project can prevent this from happening. It also ensures that you don’t overclaim, which would put you at risk of repaying your credit or even a fine.

What records are needed?

You need to demonstrate that you are claiming for eligible R&D activities and that the costs you have claimed are valid expenditure.

Technical Documentation

All claimants must have sufficient records to show that they are claiming for qualifying R&D activities.

Revenue specifically requires companies to demonstrate that their project followed a “planned logical sequence”. This means that you need to show more than just the results of your R&D; you need to keep records to show the work you did to get to that result.

The kinds of records you may need to demonstrate are:

• Timesheets for staff
• Competitor analyses
• Results of a literature review or other evidence that the solution was not in the public domain
• Evidence of the systematic investigation, such as:
  • Technical specifications
  • Experiments and associated results
  • Project plans and logs
  • Milestone reports
• Staff qualifications and experience
• Internal communication discussing the projects

Financial Documentation

Every cost that is incurred for R&D purposes must be evidenced. This is not just good accounting practice, but crucial for justifying your R&D tax claim.

However, beyond this, claimants should aim to make it clear how you apportioned costs across projects. To do so, you may wish to keep the following:

• Timesheets and payslips for staff
• Invoices and contracts for subcontractors and descriptions of the work done
• Invoices and receipts for software costs and consumable items and methodologies for apportioning costs

Your methodology for allocating costs may differ depending on the records available and the facts of each case. For example, one software may be apportioned based on licenses used by R&D staff and another may be apportioned based on staff time spent on R&D versus non-R&D.

Level of Detail Required

Revenue’s position is that all projects should have defined project deliverables, but they recognise that smaller-scale projects may have less formal governance methodologies in place. Additionally, some fields of science and technology are more stringent with their requirements than others.

For example, a pharmaceutical development company would be expected to keep very detailed records to comply with regulatory standards. Revenue would not expect a company in another field, particularly one with smaller-scale projects, to keep the same level of detail.

However, it is imperative that all companies make an effort for continuous, contemporaneous documentation. The guidance also makes a point that any electronic records should clearly indicate the author/creator, and the date of creation.

How should you prepare?

At Myriad, we’ve been making R&D tax credit claims for over 20 years. With this knowledge and experience, we’re happy to answer any questions about preparing your R&D tax credit claim.

We always advise companies to prepare a claim report in advance of making a claim. This ensures that you’ve made a claim correctly and that you are prepared for any questions from Revenue in advance.

If you have any questions about implementing a record-keeping framework, or about meeting Revenue’s requirements for a claim, get in touch with our team.