R&D tax credits

The records Revenue expects behind an R&D claim

By McManus McCabe Chartered Accountants

A valid R&D claim can still be reduced or lost if it is not backed by the right records. The credit rests on two things, that the work met the science and technology test and that the expenditure was genuinely incurred on it, and Revenue expects to see documentation supporting both. The best time to create that documentation is while the work is happening, not months later when you are preparing the claim and trying to reconstruct what was done and why.

This guide sets out the records that give an R&D claim a solid foundation: the technical documentation on the science, and the financial documentation on the spend. It is about substantiating a claim well, so that it stands on its own evidence.

Why records decide the outcome

The strength of an R&D claim is the strength of its evidence. A claim that is technically valid but poorly documented is vulnerable, because if the work and the costs cannot be demonstrated, the value can be questioned. Good records do the opposite: they let the claim speak for itself and give confidence that it is complete and accurate. This guide is about substantiating a claim properly. If Revenue does open a wider query into a company’s tax affairs, that is a separate matter, and our page on Revenue compliance interventions covers that side.

Technical records: proving the science

The technical documentation exists to show that the work met the science and technology test, in the words of the people who did it. Useful records include:

• 1
  Project descriptions that state the scientific or technological advance being sought.
• 2
  A clear articulation of the uncertainties: what was not known or achievable at the outset, and why.
• 3
  Technical notes, design documents and specifications showing the approach taken.
• 4
  Records of experiments, tests, prototypes and iterations, including what did not work and what was learned.
• 5
  Notes of the competent professionals involved and their reasoning.

The recurring theme is the advance and the uncertainty. Documentation that simply describes what was built, without capturing the technical unknowns and how they were tackled, misses the very thing the credit is about.

Financial records: proving the spend

The financial documentation ties the claimed expenditure to the qualifying work:

• 1
  Time records: how the R&D staff spent their time, so the apportionment of salaries to R&D is supported rather than estimated after the fact.
• 2
  Payroll records for the people whose costs are claimed.
• 3
  Invoices and receipts for materials and consumables used in the R&D.
• 4
  Contracts and invoices for subcontracted and third-party R&D, showing they fall within the qualifying limits.
• 5
  A clear, reasonable basis for any overhead apportionment, documented so it can be explained.

Building record-keeping into the year

• 1
  Set up simple project records at the start of each R&D project, stating the advance sought and the uncertainties.
• 2
  Keep technical notes and test results as the work progresses, including failures.
• 3
  Record R&D staff time on an ongoing basis, not retrospectively.
• 4
  File invoices and contracts for materials and subcontractors against the project.
• 5
  Agree and document the overhead apportionment basis before the claim, not during it.

None of this needs to be elaborate; it needs to be consistent and made at the time. A little discipline through the year turns claim preparation from a stressful reconstruction into a straightforward assembly of what you already have.

Getting the substantiation right

Knowing exactly what evidence a claim needs, and how to capture it without burdening the technical team, is where experience helps. McManus McCabe, chartered accountants, can help you put simple, effective record-keeping in place and assemble the documentation that lets an R&D claim stand on its own. See our tax compliance and consultancy service, and talk to us early rather than at year end.

Frequently asked questions

• What records do I need for an R&D tax credit claim?

  You need contemporaneous records covering both the science and the spend. Technically, documentation of the advance sought, the uncertainties faced and how you investigated them, including tests, iterations and failures. Financially, time records for R&D staff, payroll, invoices for materials and subcontractors, and a documented basis for overhead apportionment.
• Do I need time records for R&D staff?

  They are strongly advisable. A reasonable, ongoing record of who worked on the R&D and for how long supports the apportionment of salaries to R&D and is difficult to challenge. An after-the-fact estimate of staff time is much weaker and invites scrutiny, so capture it as the work happens.
• When should I create the documentation for an R&D claim?

  While the work is happening, not at year end. Contemporaneous records, made at the time, carry far more weight than a narrative reconstructed from memory later. Setting up simple project and time records at the start of each project makes the eventual claim faster, stronger and more defensible.
• What technical evidence does an R&D claim need?

  Evidence that the work met the science and technology test: a statement of the advance sought, a clear description of the technological uncertainties, and records of how they were investigated, including designs, tests, prototypes and what failed. Documentation that only describes what was built, without the uncertainties, misses what the credit is about.

Useful resource

For the record-keeping Revenue expects, see Revenue on R&D tax credit documentation.