How to set up R&D tax credit record keeping

To make a successful Research and Development (R&D) tax relief claim, you must start keeping clear, consistent records of your innovative work now. HMRC requires contemporaneous evidence that shows how you've tried to overcome scientific or technological challenges. Getting into the habit of documenting your work as it happens is the single most important step towards getting cash back for your innovation.

What counts as R&D in HMRC's eyes?

Forget lab coats and test tubes. For a small tech business, R&D is simply about creating a new product or process, or improving an existing one, where you faced a technical challenge you couldn't easily solve. If your team wasn't sure if a technical goal was achievable or didn't know how to achieve it, you were likely conducting R&D.

This could include:

• Developing a new algorithm to process data more efficiently.
• Creating a novel way to integrate your software with another system.
• Building a feature that required overcoming significant technical limitations.
• Experimenting with new technologies to improve your product's performance.

The essential records for your claim

Your goal is to create a clear audit trail. At a minimum, you should be keeping track of the following for each innovative project:

1. Project Goals: What was the scientific or technological advance you were trying to achieve? What were the uncertainties you faced from the outset?
2. Activities Undertaken: What specific steps did your team take to overcome the uncertainties? Document the progress, the dead ends, and the final outcomes.
3. Staff Involvement: Who worked on the project? You must record the time they spent on these specific R&D activities. This is often the largest part of any claim.
4. Direct Costs: Keep records of software licences, materials, or utilities consumed directly in the R&D process.
5. Subcontractor Costs: If you paid a third party to help with the R&D, keep their contracts and invoices, clearly detailing the work they did.

How to make record keeping simple

The best way to keep good records is to build the process into your daily work, rather than trying to remember everything months later. Use the tools you already have:

• Project Management Software: Use tools like Jira, Asana, or Trello. Create specific 'R&D' tags or projects. When a developer works on a task related to a technical challenge, they can log their time against that task.
• Version Control (like Git): Encourage your team to write detailed commit messages. A message like "Experimented with a new caching strategy to solve latency issue X" is a fantastic piece of evidence.
• Regular Reviews: Hold brief, regular meetings (e.g., fortnightly) to identify and write down the R&D that has taken place. This keeps the information fresh and accurate.

Top Tip: Don't forget that failed projects count! The R&D tax relief scheme rewards the attempt to overcome a technical challenge, not just the success. If you tried to build something innovative and it didn't work, the time and money you spent can still be included in your claim.