By Sarah Cheesman, Group Digital Marketing Manager at Catax
Although HMRC make it clear that they do not expect companies to keep separate records of their research and development activity, good record keeping can have a huge impact on the total that your company can claim in tax credits.
So, what kind of records do you need to be keeping?
To make an R&D claim, you will need to keep records of the projects that were undertaken, the staff time taken up within the project, any subcontractors that were used and any consumables.
You also need to account for all qualifying expenditure. This includes all time and money spent on the research, so it’s useful to keep a record of this throughout the project.
The most effective way to record staff time is using R&D timesheets. This is usually done at a Project Management level and is ideal for logging the amount of time different staff/teams spend on projects.
In addition to this, at Catax we use our Apportionment Tool to help our clients estimate the staff cost percentage for each project and can suggest increases or decreases based on anonymous industry averages for data from our client bank.
Another aspect often overlooked is the Qualifying Indirect Activity time linked to projects such as finance, admin and maintenance time. Even if a timesheet system is adopted, these costs will usually need to be extracted separately for the claim.
Keeping track of capital expenditure is also beneficial in assisting with a Research & Development Allowances (RDA) claim.
Bearing in mind that better record-keeping can lead to larger claims, it is important to be accurate in the information that is logged. It is useful to identify areas where you would traditionally rely on estimation at the beginning of a project, so that you can design a record-keeping process to ensure there is more accuracy in your claim.
It’s worth noting that as dividends are a return on profit paid to shareholders and not remuneration for services provided, they cannot be included in R&D claims. Shareholders carrying out substantial amounts of time on R&D may want to consider switching to receive renumeration via salary. As long as the individual has the same post-tax income then the additional Corporation Tax relief generated through R&D will more than outweigh the National Insurance cost at a certain tipping point. Of course, there may be many reasons not to change the remuneration policy and full advice should be sought as to the optimum structure to use. You can read more about this topic here.
There is no “one size fits all” to R&D record keeping, the more a client can do the more accurate the claim will be and the faster Catax can process the claim. That said, we do not expect our clients to invent a complicated book-keeping system merely to justify a claim’s value.
If you’d like to speak to us further about forward planning for a particular research project, or anything else, please contact us on 0300 303 1903 or email enquiries@catax.com