Making an unexpected discovery and carrying out R&D work are two very different things — and only one is eligible for tax relief.
That is because R&D is a systematic project with an end goal — to achieve an advance in science or technology. And to prove that a project was carried out in this way, whether it was successful or not, you need to keep records.
There is no one-size-fits-all to R&D record keeping, but the more a business can do, the more accurate the claim will be and the faster it can be processed.
It’s in your best interests too, as you don’t want any qualifying costs to be missed off a claim and to get back less than you’re entitled to.
So if you are just about to embark on an R&D project, consider getting into the habit of record keeping now. From the outset it is worth noting down what advances you are hoping to achieve, putting it in the context of the current state of knowledge and technology internationally. This demonstrates your intent in making an advancement — which is very different from stumbling on something new.
Documents you should keep track of include copies of meeting notes and correspondence relating to the research, contracts, invoices, bank records and PAYE records.
At the very least, we will want to see payroll records and example invoices for materials, subcontractors and software, plus copies of expense claims for reimbursed expenditure. The more accurate the records are, the more robust the financial aspects of a claim, and the easier it is to deal with any HMRC enquiry.
Larger companies, or those with previous R&D tax relief claims, may be expected to keep better R&D records. You do not necessarily need a new book-keeping system. Your record keeping can be supported by timesheets and materials invoices posted to a job costing system that tracks single projects.
When it comes to making a claim, you will be glad you prepared well and have a papertrail that will ensure all qualifying costs are included in the submission to HMRC.