When it comes to software research and development claims, no size fits all. From what type of business you are to what research you undertook, even what staff or subcontractors participated in the R&D, the evidence will differ slightly for every claim.
But there is one best practice you should keep in mind: whether you are a first time claimant or a repeat claimant, a claim will benefit greatly from plenty of contemporaneous information. It’s also important to understand that R&D Tax Credits are a Corporation Tax relief, and the claim is made in the relevant section of your Corporation Tax Return (CT600). The tax return has a few variants, so make sure you read the accompanying guidelines.
Collecting evidence
Having as much evidence as possible and detailed contemporaneous records will not bar you from claiming. However, HMRC expects you to collect some documentary evidence about what research took place and when, and repeat claimants are expected to maintain adequate records going forward in order to provide the clearest picture of the work they’ve done.
HMRC does understand that individual companies will have different ways of keeping records. However, there is a systematic nature to R&D work which is why it expects some evidence of the R&D activity, for instance, in the form of planning.
Here is some of the evidence you can collect to help support your claim:
- Project planning and meeting notes, status reports, issue or risk logs.
- Technical documents that help understand how your project evolved and met technical challenges – these could include test results.
- Time sheets for your staff who were involved in the project.
- A record of all the project costs you incurred, this is the most important evidence you can supply as it will help you identify costs of contractors, licenses and materials used during your work.
What to include with your tax return
Along with all your records of expenses, staff and time spent on each project task, you will need to submit:
- A comprehensive description of your R&D project and activities to show HMRC that you fully understand the criteria involved in building a successful technical narrative, and how that criteria was met by the work you undertook.
- A detailed breakdown of your R&D expenditure, divided by category, to show HMRC you understand the rules of qualifying costs.
- A full methodology of how you approached the project and how you chose which expenditure was eligible. You’ll need to consistently refer back to the rules and demonstrate how R&D spending was used.
- All the records you kept during the project and how you used them to establish your total R&D expenditure.
It’s important to note that none of the above is compulsory, since HMRC understands that no one size fits all. Having as much evidence as possible will help your claim, but much still relies on having a strong technical narrative. For more information, please visit our Tax Credit page.
If you need help with building your claim, don’t hesitate to get in touch.
