The RDEC - Research and Development Expenditure Credit - scheme offers two primary advantages. Firstly, businesses can account for the credit above the line in the P&L account to provide positive profit visibility in the business accounts. Secondly, a cash credit may be payable from HMRC if the business has no tax liability. However, the rate you will be paid on the RDEC scheme is 12%, compared to 33% on the SME scheme. Our tax advisors at F.Initiatives can help you to assess the benefit of your R&D claim and to ensure the right scheme is pursued by your business.
HMRC encourage regular claimants and bigger companies to keep thorough records. However, it does not expect every business to evidence an exhaustive process for record-keeping if that business had no other purpose for doing so at the time - for example, with a later R&D tax credit claim. Many businesses will choose the timesheet method as a good-practice record keeping method, but only where it is appropriate to the business. The best approach is to identify and implement a real-time recording system which allows you to identify qualifying R&D projects and the costs and expenditure associated with them and permissible for your claim. Remember, an R&D project will be forward-facing rather than retrospective in nature, with R&D occurring when work seeks to obtain a knowledge advance. Good processes for record keeping can vary greatly, and the team at F.Initiatives can help to advise your business on this particular situation as part of our year-round support for your R&D tax incentive and grant claiming activity.
If you have no business records, making a claim becomes more difficult, but not impossible. HMRC will expect to see some evidence of R&D record taking as this is a core part of the research and development tax credit claim. Good records also tend to be conducive to a maximised value claim, as they allow HMRC to make an award with confidence when submitted with a quality, robust and thorough application that is well evidenced and correctly prepared.
If you have no specific R&D records for your project, however, you can sibmit a claim methodology that is admissible and bespoke to the needs for your business. You may still be in a position where you can claim tax credits as most R&D projects leave a paper trail within the business, even if specific reporting was not made at the time. In many instances, records can be gathered from existing sources to create your R&D tax credit claim.
Ideally, you should be able to provide records, such as timesheets or other data records, to evidence the amount of company time that has been spent on R&D. For the time that your employees spent on the business R&D project for which you are claiming R&D tax credits, you must make an allocation on a basis that is 'just and reasonable'. HMRC prefers to see contemporaneous records for R&D claims. Only costs of employees and directors who have been directly involved in qualifying R&D project activity can be included. Where only a proportion of time was spent in this way, that relative amount of time - and associated expenditure - can be submitted in the claim.