The way an employee's time is measured for research and development (R&D) tax purposes depends on the records kept by the company.
It is not uncommon for a company to find out they are eligible to claim R&D tax relief after the accounting period. Many companies therefore have not kept thorough records of the R&D their staff have undertaken.
As each company has different records, there is not a one size fits all approach. You need to consider what records you have available and whether these support an R&D tax claim.
Records appropriate for supporting staff time
There are a number of ways of identifying R&D work each employee has undertaken.
Obviously, the best method is to have recorded timesheets of the employees, with the number of hours worked on the R&D project, broken into a short narrative detailing the work they undertook.
This is not always possible and HMRC acknowledges this. This is why HMRC accept a pragmatic approach to record keeping.
An estimate of the time per employee can be used and should be supported with evidence and a legitimate apportionment methodology.
If timesheets are unavailable, you can identify the start and end dates of your R&D projects from internal records. These might also include who was involved and what their role was in the project. Using these records as a basis, a reasonable estimation can be calculated.
Record-keeping
After gaining experience of gathering information for R&D tax claims, you should start thinking about keeping appropriate records using a methodology that fits your business needs.
The guidelines from HMRC do not provide specific record-keeping requirements.
It is your responsibility to ensure that your R&D claim includes accurate information.
