6TH APRIL, 2021

My Record Keeping Is Less Than Perfect. Can I Still Claim R&D Tax Credits?

HMRC’s approach is actually fairly flexible

HMRC actually doesn’t stipulate specifically what record keeping it requires for R&D Tax Credits. But a somewhat lax attitude isn’t great either.

It’s still expected that anyone making a claim will be able to demonstrate what costs it is they’re actually claiming for, and to evidence those costs.

Having said all that, HMRC does not expect claimants to have maintained records where previously there was no business requirement to do so. Exactly how records are kept is largely up the claimant, and as long as robust, real-time methodology is used then that should be fine.

To make life a bit easier, HMRC rules are clear that the R&D project itself must have sought to make an advance in science and/or technology. The time allocated to R&D by members of staff involved in must also be accurately apportioned, and the outcome of the project must not have been obvious from the start. Our recent blog may be useful here: R&D Tax Credits: What Does "Technological Or Scientific Uncertainty" Actually Mean?

The takeaway message is that although record keeping is extremely important to your R&D Tax Credits claim, the way you do it is up to you. HMRC recognises that different businesses in different sectors will have their own way of doing things, and for new claimants especially the odd gap isn’t the end of the world. The important thing is to make sure your records are as good as they can be when claiming in future.

The kind of R&D record-keeping that HMRC expects

Although HMRC isn’t specific in its manual about record keeping, we’re now sensing a shift towards a requirement for more formal record-keeping processes. HMRC clearly expects evidence of contemporaneous, documented records to be presented as part of a convincing application.

As R&D Tax Credits are paid out of public taxes, a requirement for high quality record keeping is not unreasonable. However, HMRC does recognise that companies claiming for the first time may have some holes in their relevant record keeping history, and will make allowances for that.

Remember though that since a claim can be made for your two preceding accounting periods, you may be including work that occurred up to three years ago. Records that aren’t up to date mean you run a real risk of under-claiming, therefore missing out on cash you’re rightfully owed.

I haven’t really got time to devise a whole new record keeping system

You probably don’t actually need one. Many businesses simply adapt the way they keep record processes already. There’s no need to reinvent the wheel here - timesheets, invoices for materials purchased as part of the project - they should already be filed somewhere. It’s also a good idea to meet with your teams regularly to discuss the allocation of resources to R&D whilst setting out defined goals and strategies. The minutes from these meetings can be invaluable as a form of record keeping too.

Remember: Accuracy makes it easier to justify larger claims

Larger R&D Tax Credit claims naturally stick out a bit. But the better your record keeping and the more evidence you can provide, the bolder you can be in increasing your claim’s value. Keep your records right from the planning stage of the project if possible and stick to the cold hard facts.

Records should be kept in real-time as much as possible

We can’t highlight this enough: Real-time record keeping is always best wherever possible. Not only does it strengthen your claim in the eyes of HMRC, but it makes the process of claiming much easier for you. It also means you’re not relying on memory (it’s hard enough remembering what work was undertaken last week let alone last year!). This in turn can mean you actually increase the value of your claim, as nothing is left off and you’re not relying on estimates. Again, how you do this is largely up to you; some companies stick to timesheets and hand-written paperwork, others use various forms of cloud-based tracking software.

Good record keeping can even help you avoid HMRC investigations in future

Successful R&D Tax Credit claims are based on due diligence and attention to detail. Poorly constructed claims that lack solid documentary evidence are less likely to stand up to HMRC scrutiny, potentially leading to HMRC enquiries or even an investigation. HMRC officers aren’t mind readers and they see huge numbers of R&D tax relief applications every year. So don’t make it difficult for them.

It’s also essential that you have shown you clearly understand the guidelines around R&D tax relief and that your technical report backs this up. Of course this is something our expert team of R&D tax advisors will be pleased to discuss with you - get in touch.

And one more thing - make sure your records are accessible

Records should be kept securely and easily accessible by anyone in the company involved in the R&D Tax Credits claim. Not only is this important when putting your claim together, but should HMRC raise questions later you’ll have everything needed at hand.

How the Tax Cloud is making R&D Tax Credits claims easier, faster and more successful

The Tax Cloud portal was created by the R&D Tax Credits specialists at Myriad Associates. It’s so simple and quick to use, taking you through a step-by-step process to put together your application. Not only that but the fees are far lower than a traditional R&D tax claims service and you don’t even have to pay until the money has been awarded.

Everything’s done online using the cloud-based platform so you can complete your application at a time and pace to suit you. And of course, our R&D funding experts are on hand every step of the way.

With average claims in the region of £55,000 it could be the best decision you make for your business all year.

Sign up free to the Tax Cloud portal for businesses today or get in touch to speak to our team.

Barrie Dowsett, ACMA, GCMA
Author Barrie Dowsett, ACMA, GCMA CEO, Tax Cloud
Start your Tax Cloud claim now Discover if you qualify and ensure your R&D tax claim is maximised. Get started
Powered by Myriad Logo

Myriad Associates helps businesses maximise tax reliefs and secure R&D grant funds. We specialise in R&D Tax Credits, Video Games Tax Relief, Innovate UK grants, Horizons 2020 grants, and Research and Development Capital Allowance Claims.

  • Submitting R&D tax claims since 2001
  • 100% success rate
  • Over £100m claimed and counting
  • Industry leading specialists
  • In-house technical, costing and tax experts
  • Member of the Research and Development Consultative (RDCC) committee

Meet some of the team behind Tax Cloud

Barrie Dowsett Barrie Dowsett ACMA CGMA Chief Executive Officer
David Farbey David Farbey MA, FISTC, FRSA Technical Consultancy Director
Lisa Waller Lisa Waller CTA, ACCA R&D Tax Manager
Lauren Olson Lauren Olson MA, MISTC Senior Technical Consultant