R&D Tax Credits: My Client Has No Records Of Their R&D Work

10th Jul 2020
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Why might record-keeping be tricky?

In a perfect world all companies would keep the most accurate, detailed records of their research and development projects as a matter of course. But perfect is one thing this world definitely isn’t.

With the stresses of dealing with coronavirus lockdown, staffing issues and a whole range of daily business tasks, it’s no wonder that for SMEs in particular this area of admin can slip.

Luckily however, HMRC actually doesn’t set out any formal record-keeping requirements in regards to R&D Tax Credit claims. It acknowledges that each business will go about their operations in a different way, and that styles of record-keeping will vary. Additionally, HMRC accepts that for those making claims for the first time, fully audited records to support their application may simply not be available.

However, of course HMRC does require applicants to provide their best estimates of staff time engaged, plus documentary evidence like invoices and payroll reports in support of the expenses incurred. Additionally, it expects that future claims will be adequately supported with an appropriate level of record-keeping as standard.

My client doesn’t have any relevant records at all of their R&D activities though

This isn’t a problem either, and there’s still every chance they can make an R&D Tax Credits claim. Despite this particularly generous tax relief having been around since the early 2000s, many companies still don’t become aren’t aware of it until after their project is complete. But as long as they have something to support their claim in the way of planning applications, media releases or similar, then this is likely to be enough.

The fact is that even without any formal records, R&D projects can still often be pieced together to form a good enough basis for an R&D Tax Credits claim, particularly for novice claimants. But we still always say that nothing beats keeping clear, accurate records of your R&D work wherever possible.

What are good record keeping practices when it comes to claiming R&D tax relief?

As mentioned, after the first time of claiming, any subsequent R&D tax relief applications should including the right records. There are two main things to bear in mind here:

1. Make sure that time records are clear and precise

Time records can be difficult even for companies who have claimed many times before. Most businesses use some form of employee timesheet, and these will need to show how much of each staff member’s time was specifically spent on R&D work.

2. Records should be detailed and clear

We’re talking concise, to the point and no waffle. Records should be clear and easy for the assessor to understand which will also bode well for future claims. Remember, your client is trying to achieve a cash boost to potentially finance further R&D projects later on. This is why it’s good to get into clear, effective record-keeping habits early and start as they mean to go on.

If you’re not sure about any aspect of what we’ve said so far, we’re here to help. Let our experienced R&D specialists ensure that your client’s records are in order for the best chance of R&D tax claim success.

How up-to-date do company records need to be?

As up to date as humanly possible! Again, there’s no hard and fast rules but records that are very up to date will put your client in the best light with HMRC. It gives a feeling that the applicant is diligent and that the record-keeping is accurate. These claims are far more likely to be accepted than those that rely on estimates.

Timesheets are best submitted if at all possible, but a quarterly review of R&D work undertaken, complete with additional explanation around it would also be acceptable.

Something to note for future R&D tax relief claims

As time goes on and your client potentially makes more R&D tax claims, frankly HMRC will expect them to get better at it. They will want to see records in real-time at each stage of the project, so businesses will need to decide how this is done before the work starts. They should also devise a record system that is followed through from beginning to end, and get all relevant staff on board with it.

It’s true however that some things are hard to quantify. For example, apportioning staff costs to reflect the R&D work they completed may not be straight-forward. Daily timesheets for staff can help if they track what an employee did and when. Essentially, HMRC doesn’t need your client to dream up records that are purely to support an R&D Tax Credit claim. It’s simply about creating a manageable, efficient system that keeps all records of the company’s R&D expenditure and activities in one place.

Offer your clients a more complete tax advice service

As a busy business accountant, you’ll be dealing with a huge range of tax and financial issues right now. Amongst sorting out receipts, meeting usual daily demands and dealing with queries, R&D Tax Credit applications can feel like one big headache.

At Myriad Associates (creators of Tax Cloud UK) we only work in R&D Tax Credits, R&D grant funding and Video Games Tax Relief. This puts us in the perfect position to help you build your client’s claim from start to finish. We’ll work alongside you, not only in making sure their claim is clear and accurate, but to also ensure no costs are missed out, so maximising return.

The Tax Cloud portal for accountants allows you to add in your client’s own figures and see what they could receive. Offering an outstanding value, self-guided solution to R&D tax relief, the portal is ideal particularly for companies with relatively straight-forward tax affairs. So why not try the Tax Cloud today?

For more information about any topics we’ve covered here, please do get in touch on 0207 360 4437 or use our send us a message. You can also get more details on our R&D Tax Credits page, and don’t forget to have a look at our recent blog too: Encourage Your Clients To Make A Fast, Hassle-free R&D Tax Credit Claim Using The Tax Cloud Portal