How organisations in the UK can use time tracking solutions to claim R&D Tax Relief

How organisations in the UK can use time tracking solutions to claim R&D Tax Relief

In the UK, HMRC provides R&D Tax Credits to companies as an incentive to promote research and development. Under this scheme, a company engaged in qualifying R&D activities can either reduce the amount of tax it pays, or get a cash sum upfront. R&D Tax Credits promote investment in innovation, and could be the key to survival for many Small-to-Medium Enterprises (SME) in the UK today.

Many companies in the UK have lagged behind their European counterparts in applying for R&D credits. By some estimates, fewer than 5% of eligible companies have taken up the scheme. The main reason for this situation is that many SMEs operating in manufacturing and software development may not be aware that they carry out certain kinds of R&D as defined by the HMRC. In addition, there may be uncertainty regarding the kind of processes to be followed to document R&D claims.

How companies can qualify

For companies to qualify, there are employee size, revenue, and other criteria they need to meet, details of which can be found on the HMRC site. The HMRC also requires that a company’s R&D activities lead to a resolution of technological uncertainty—which need not necessarily be the kind of purely scientific research done at large research centers. If the technology that a company is working on is innovative, and there is no ready solution in the public domain, such technological development activities can probably be considered to be R&D under the purview of the scheme.

HMRC guidelines clarify that “Rather than stating the name of the product, process, functionality, etc, being developed you should consider what scientific or technological advance is being sought. This focuses attention on the project's aim for an advance, which is the key issue in judging whether R&D for tax purposes is being undertaken. Science does not include work in the arts, humanities and social sciences (including economics).

It's not enough that a product is commercially innovative. You can't claim in respect of projects to develop innovative business products or services that don't incorporate any advance in science or technology.”

Qualifying costs

Several costs associated with resolving technological uncertainty can qualify under the tax credit scheme. Eligible costs can include staff costs, heating, lighting, power, software, and consumables. Up to 65% of agency staff (part-time or external staff) can be considered as well as deductible expenses. Certain qualifying indirect activities are also eligible, such as clerical and financial activities undertaken by the R&D teams.

Employee costs include staff salaries for those directly engaged in carrying out R&D, under an employment contract, and not consultants, agency workers, other staff, or directors employed by other companies. In certain cases, even employees of other companies may qualify under the rules for staff providers, or subcontractors.

The importance of record keeping

HMRC requires that organisations maintain business records to show tax inspectors information on qualifying expenditures for projects presented for R&D tax credits. Many tax consultants recommend that companies maintain records of staff time for R&D projects. Documentation for any subcontracted work must also be provided, with work contracts that can be used to back up claims.

Detailed timesheets that establish the number of work hours put in by R&D staff are vital when it comes to backing up claims of R&D related expenditure to HMRC inspectors. Manual time tracking on paper time cards or spreadsheet-based timesheets are error-prone and can be tampered with, as time records can be entered incorrectly or based on a staffer’s memory. A time tracking solution such as Replicon TimeCost can save the day when it comes to claiming R&D tax relief, just as Replicon itself benefits from using its own solutions.

Replicon TimeCost easily captures project data for tax claims

With solutions such as Replicon TimeCost, applying for R&D tax credits is simplified by having the detailed reports of time spent by research staff on each project. Project hours are tracked in clearly defined fields, with all the relevant data available on one screen. The great advantage of this solution is that it helps set up a streamlined and repeatable process for project time tracking for R&D tax credit applications, while capturing the details of each task, along with time entries, project descriptions, and comments. Armed with detailed project and staffing data, companies can confidently apply for R&D tax credits and have all the data needed to justify their claims.

Avatar
ABOUT THE AUTHOR
Replicon
Replicon provides award-winning products that make it easy to manage your workforce. With complete solution sets for client billing, project costing, and time and attendance management, Replicon enables the capture, administration, and optimization of your most underutilized and important asset: time.
Get started today.
Set up a free trial based on your business needs. Start Free Trial

6 Ways to Simplify Remote Resource Allocation and Why It Matters

When you’re an enterprise operating at a global scale with a team of employees working from home, one of your major concerns is proper resource allocation. When it goes wrong,…Read More

The Future of Project Resource Management in Professional Services

When it comes to PSA, automation is (literally) the name of the game. We turn to machine learning and AI to make our processes easier and cut down on the…Read More

If You Want Profitability, You Cannot Ignore Resource Utilization

After an enormously challenging year, professional services firms are trying to get back on track to achieve their growth and profitability goals. To do so, it has become more important…Read More

Employee time tracking is dead

iBeacons, Bluetooth Low Energy, Proximity sensing and the obsolescence of time tracking as we know it. Businesses have to track the time their employees work for a variety of reasons,…Read More

How Sarbanes-Oxley Impacts HR Departments

Ever since the Sarbanes-Oxley Act (SOX) was passed in 2002, following a spate of high-profile corporate scandals, companies have had to take a wide range of precautions to ensure that…Read More

Reducing Absenteeism with Effective Time Management and Absence Tracking

Workplace absenteeism is a major concern for American companies. According to the US Bureau of Labor Statistics, unplanned absences cost American businesses an average of 2.8 million workdays every year,…Read More
  • Polaris
  • Time & Project Insights
  • Time & Projects Solutions
  • Replicon Products
  • Replicon Users
  • Cloud
  • Corporate
  • Professional Services Management
  • Shared Services Management
  • Time and Attendance Management
  • Customer Feature
  • Time Intelligence
  • Industry News
  • Global Compliance Updates