Staff costs count as qualifying expenditure for your R&D tax credit claim.
In this article, discover how to allocate employee time for your R&D tax claim and find out more about the contemporaneous records that could assist your claim.
Engagement in qualifying R&D
Your R&D claim should reflect the amount of time your employees spent engaged in qualifying research and development (R&D) activities. Only staff costs of employees or directors who are directly engaged in relevant R&D projects count. However, where only a proportion of the employee’s time can be classed as actively engaging in qualifying R&D activities, you can include the relative proportion of time and cost in your R&D tax relief claim.
Indirect and direct staff costs
Eligible staffing costs can fall into one of two categories:
- Activities which directly contribute to resolving a technological uncertainty
- Qualifying indirect activities (QIAs)
An employee’s direct engagement in R&D (and the extent of their engagement) is based on the activities they have performed, and therefore the allocation of the employee’s time should reflect how long they spent involved in qualifying R&D activities during the period you are claiming for. Note that, from 2023 onwards, you’ll need to separately calculate the proportion of QIAs.
Questions to ask when allocating employee time
- What qualifying R&D projects did your employee work on during that period?
- Of these projects, which qualifying activities did the employee carry out?
- How much of the employee’s total time did these activities take up?
Where possible, the time allocated to R&D activities should be supported by documented evidence and records.
Keeping records of staff costs
While there’s no official or specific record-keeping requirement for submitting an R&D tax credit claim, keeping sufficient records of your company’s research and development activities to support your claim is strongly advised. This is because HMRC expects companies to be proactive in reviewing, identifying and implementing processes that generate and produce records to support the allocated time their employees send on qualifying activities.
Of course, in practice, companies don’t always keep detailed logs of the amount of time spent on R&D activities, as it can be an impractical process to implement, commercially speaking. What’s more, HMRC generally accepts that companies claiming R&D tax relief may well be claiming for the first time or be claiming for projects they were involved in before even being aware of the potential for R&D tax relief.
In cases like these, it’s advisable that you take a pragmatic approach to allocating employee time in your R&D tax credit claim. Keep in mind that supporting your claim with evidence, even if minimal, helps to optimise your claim to help you achieve the best possible result.
Implementing specific record-keeping processes within your business obviously depends on what’s realistic for the company and appropriate in the specific circumstances. However, keeping timesheet records is one common solution that can be adopted by most, if not all, businesses.
Being as proactive as possible with keeping detailed records of your R&D activities should continue for as long as you plan on submitting R&D tax relief claims and should stand you in good stead for getting the most out of your claim.
Related reading: Why you should be tracking R&D projects in real-time.
We can support you with real-time R&D capture
Here at Ayming, we have extensive experience in deploying successful real-time capture approaches for clients across a broad range of sectors and industries.
Reach out to us today to find out how we can develop the right real-time capture process to help take your business’ R&D tax claim further.