In the guidelines set out by HMRC they state that:
“There is no record keeping requirement specifically for the purposes of claiming R&D relief, but the general CTSA requirement to keep sufficient records applies. Therefore, HMRC officers should be flexible in considering what records will be of assistance”
But is that all there is to know?
Well, the answer to that is both yes and no!
If you are making your first claim you may not have realised that your project was eligible for relief under the rules of the R&D scheme, so you would not have been expected to keep accurate records of time spent along the way (although they would expect you to have kept financial records in the usual way).
In this instance the best solution is to make an honest estimate about staff involvement and the percentage of their time spent on R&D activities during the length of the project. If a member of your team has spent 1 day a week on R&D over the course of a one-year project, that would equate to 20% of their total remuneration you can include in your claim.
This percentage can include all of the time spent on development, design, testing, prototyping and problem-solving that each team member has spent and (depending on the job role and involvement in the project) could range from a low to a very high percentage
But what about companies that have made claims in the past and want to claim again?
Well, here it gets a bit more complicated.
Larger companies, claiming through the RDEC scheme, would be expected to have a relatively robust system for recording all of their R&D activity.
For SMEs, HMRC understand that the records kept by individual companies will vary. Although you don’t have to implement a new system or introduce a costly process, they would want to see some evidence in the event of an enquiry.
Timesheet systems are great, but are not always appropriate for every business, so each company needs to find a solution that works for them. It doesn't have to be massively detailed, but having some process of recording activity is highly recommended.
One suggestion is to take minutes during your monthly/quarterly management meetings where you can make brief notes about staff involvement, difficulties or complexities encountered and the solutions that have been developed along the way.
Where possible, if you are purchasing consumables for development, testing or prototyping or if you are using a subcontractor to help with your project, it’s a good idea to itemise bills and include any reference to R&D activity on the invoices. This will make it easier to prove that your expenses are legitimate and will help to capture all of the costs when it comes to calculating your claim.
As always, the best insurance is to compile accurate and well-evidenced R&D claims so, in the unlikely event of an HMRC enquiry, the more straightforward it is to defend.
We are experts in R&D and are very happy to advise on a record keeping process that will work best for your business. Our service includes year round support for every aspect of your R&D work so if you have any doubts or need some advice, please get in touch.