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Real-time record-keeping for R&D Projects

Orla Shanagher - Tax consultant
Senior Tax Manager
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How to make real-time record-keeping a reality – and reduce risk

At ForrestBrown we have always advised that good record-keeping can dramatically improve R&D tax credit claims. Most businesses recognise the merits of monitoring time and resources spent on R&D but often meet resistance when it comes to embedding this into everyday working practices. But with HMRC’s capacity to launch enquiries boosted by the recruitment of more case workers, it is more important than ever to ensure R&D claims are supported by robust evidence.

However, post-pandemic market trends only serve to exacerbate the challenges faced by businesses in tracking R&D activity. Higher staff turnover coupled with the increased prevalence of hybrid working and collaboration between teams in separate locations make it more challenging than ever to keep accurate records if the right processes aren’t in place. This article aims to demystify record-keeping and share practical tips to help instil a close to real-time approach in your R&D teams and across your wider business.

Managing a complex stakeholder network for R&D claims

At first glance, large companies might appear to be ahead of the game when it comes to record-keeping. More sophisticated HR systems are likely to come with the capability to track R&D activity across multiple teams. But with a more complex structure comes another challenge – getting buy-in for the R&D claim in the first place.

To help overcome this hurdle for clients, ForrestBrown can produce persuasive internal communications material for project leads to share with stakeholders within the organisation, as well as provide comprehensive training sessions. This helps them understand what qualifies as R&D and the potential benefits to the business. Building understanding and support will increase the likelihood that internal stakeholders will commit to your record-keeping requirements.

This approach has proved effective with a ForrestBrown client operating a large network of group companies, all of whom were required to report R&D activity to a central finance function.

Find out more about our R&D tax services for large companies.

One size doesn’t fit all when it comes to record-keeping

However, this approach won’t be appropriate for everyone. Systems that work for large and complex companies could be overkill for smaller, single-site operations. But that doesn’t necessarily mean it is easier to encourage better record-keeping. Fast-growth startups may have developed so quickly that systems which would enable record-keeping are not in place. Conversely, long-established family firms may be loathe to change ways of working which have served them well over many years. But whatever the size of your company, HMRC will expect to evidence of R&D in the records available, so it is important to take a tailored approach to give you the best chance of success.

What records do you need for R&D claims?

There is no fixed record-keeping system for a R&D tax credit claim.

As it’s the nature of R&D work that it is carried out systematically, HMRC generally expect some evidence of R&D work to be demonstrated in your company’s records: some form of planning material, for example.

HMRC do not, however, have set record-keeping requirements specifically for the purposes of claiming R&D tax credits. They understand that the records kept by individual companies will vary.

Making R&D record-keeping part of your company culture

We light-heartedly liken record-keeping to dieting. You start with the motivation to make big changes but it’s very easy to become downhearted if you don’t see instant results. That’s why we advocate a ‘little and often’ approach:

  • Don’t get to the end of the year then try to recall how much time has been spent on R&D. Instead, record it daily, weekly and monthly.
  • Incorporate record keeping into the company’s existing processes rather than creating new and complex processes that are likely to be met with resistance and rejection by staff.
  • Add an agenda point on R&D to regular team meetings and make it easy for teams to report their contributions by sharing access to key documents and folders.

Small steps like these will be easier to sustain and will avoid R&D record-keeping becoming burdensome for busy technical teams.

Developing an ‘always on’ approach to R&D record-keeping

We also provided training and quarterly catch up meetings to our clients to better equip teams to identify R&D and log specific technological advances and uncertainties arising. Combined with an ‘always on’ relationship with ForrestBrown, this enabled the client to capture a full picture of its R&D activity rather than the partial snapshot previously generated by a retrospective annual review.

Avoiding common R&D tax record-keeping mistakes

Companies looking to up their R&D record-keeping game should avoid these common pitfalls:

  • Timesheets are a useful tool – but only if technical teams buy into the purpose behind their introduction. Make clear that recording time accurately will play a part in securing funding for future investment in R&D.
  • Include everyone in record-keeping. Don’t make the mistake of excluding senior people such as the company founder, CEO or Chief Innovation Officer (CIO). If they are contributing to innovation, then it is important to keep a record of their time.
  • Don’t be restricted by project boundaries when recording time. All activities that collectively resolve scientific or technological uncertainty constitute R&D – and these could be happening elsewhere in the business beyond the immediate parameters of your project.
  • On the flipside, not all your project hours will constitute R&D. Be realistic about what aspects of the project you record. For example, not all elements of building a software platform will be eligible. All software development involves creating new code. But only some new code is R&D. Always remember the two key requirements for R&D – seeking an advance in science or technology through resolving technological uncertainty.
  • Finally, projects may continue well beyond the R&D stage but retain the same project code. So, make sure you recognise this in your record-keeping.