# What happens if a company doesn’t have any records of its R&D activities?
Author:  Pal Sinha, Barnali 
Author URL: https://financedigest.com/author/pal-sinha-barnali
Published: 2020-01-08
Category: BUSINESS
Category URL: https://financedigest.com/category/business
Meta Title: R&D Tax Credits: The Ultimate Guide
Meta Description: Discover how R&D Tax Credits can benefit your business. Learn about eligibility, claims process, and importance of record-keeping. Contact Myriad
URL: https://financedigest.com/what-happens-if-a-company-doesnt-have-any-records-of-its-rd-activitieshtml

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By **Cale Bannister** at [Myriad Associates](https://www.myriadassociates.com/) ­­­­

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Launched in the year 2000, R&D (Research and Development) Tax Credits essentially offer a tax break for businesses engaged in innovation and was set up by the UK Government. A lifeline for businesses both big and small, they allow a limited company to claim back up to 33% of its expenditure in research and development, regardless of whether the project was a success or not.

For SMEs, it doesn’t matter which sector or industry your company is in, or even if it makes a profit or a loss – it can still [claw back](https://www.financedigest.com/stocks-claw-back-as-markets-calm-after-evergrande-led-slide.html "Stocks claw back as markets calm after Evergrande-led slide") up to 33% of the amount it has spent. With larger companies, a maximum of 10% of R&D expenditure can be [claimed back](https://www.financedigest.com/back-in-barcelona-telecoms-bosses-stake-claim-to-digital-future.html "Back in Barcelona, telecoms bosses stake claim to digital future"), which can add up to some serious numbers.

The way it works is that the amount is paid either as a refund on a company’s [Corporation Tax](https://www.financedigest.com/irish-corporate-tax-boom-breaks-more-records-in-november.html "Irish corporate tax boom breaks more records in November"), or in the case of loss-making businesses, as a lump sum credit. The money can then be used for anything, from taking on new staff, [settling bills for contractors or even paying](https://www.financedigest.com/cvs-walmart-walgreens-agree-to-pay-13-8-billion-to-settle-u-s-opioid-claims-sources.html "CVS, Walmart, Walgreens agree to pay .8 billion to settle U.S. opioid claims – sources") salaries. In this article [Myriad Associates](https://www.myriadassociates.com/) explain the ins and outs of record-keeping, shining some light on the subject for those who may be a bit confused about it.

**So why does good record keeping matter?**

![R&D](https://prod.superblogcdn.com/site_cuid_cm5qst7v3003gwirgwqtxn8i8/images/rd-450x301-1736838958523-compressed.jpg)

The key to a successful R&D [Tax Credit](https://www.financedigest.com/employee-retention-tax-credit-is-a-lifeline-for-businesses.html "Employee Retention Tax Credit is a lifeline for businesses") claim is not simply in telling HMRC that your R&D project took place, but in proving it. The onus is on your company to persuade the [tax authority](https://www.financedigest.com/german-tax-authorities-should-show-leniency-to-households-firms-amid-energy-crisis-letter.html "German tax authorities should show leniency to households, firms amid energy crisis – letter") that your R&D activities set out to solve a specific scientific or technical problem (whether it actually succeeded in solving it or not is actually irrelevant) – and the only way to do this is through data and records.

Record-keeping is a vital part of the R&D Tax Credit application process, and HMRC expects to see hard evidence in the form of high quality record-keeping. Accurate, detailed records will not only speed up the process of claiming but can even help to maximise the overall value awarded. However, if you’re finding it difficult to lay your hands on the appropriate records, or you’re worried about some being mislaid, Myriad Associates can still work with you to understand the R&D activities your [company has engaged in and help you create your application accordingly](https://www.financedigest.com/more-than-twice-as-many-consumers-trust-customer-reviews-over-companies-themselves-according-to-research-from-smart-money-people.html "More than twice as many consumers trust customer reviews over companies themselves according to research from Smart Money People").

**No relevant records at all of your R&D activities? You’re not alone**

And most importantly, all is not lost! The first thing to do is not panic; there’s still a good chance you can complete an [R&D Tax Credits](https://www.myriadassociates.com/services/rd-tax-credits/) claim. It’s often the case that [companies don’t realise at the time that R&D activities are happening that they are eligible for a tax](https://www.financedigest.com/capital-tax-hikes-looming-how-companies-soften-the-blow.html "Capital Tax Hikes Looming: How Companies Soften the Blow") reduction. Only after the work is [complete do they hear about R&D Tax Credits and then end](https://www.financedigest.com/veritone-launches-marvel-ai-a-complete-end-to-end-voice-as-a-service-solution-to-create-and-monetise-hyper-realistic-synthetic-voice-content-at-commercial-scale.html "Veritone Launches MARVEL.ai, a Complete End-to-End Voice-as-a-Service Solution, to Create and Monetise Hyper-Realistic Synthetic Voice Content at Commercial Scale") up kicking themselves! Don’t worry – we’ve seen it before. The good news is that innovative projects tend to leave their mark on your [business in one way](https://www.financedigest.com/five-ways-businesses-can-prepare-themselves-for-the-digital-economy-be-kaler-pilgrim.html "Five ways businesses can prepare themselves for the digital economy – Be Kaler Pilgrim") or another, for example in planning applications, media releases or new buildings being erected. So even without any formal records, in many [cases developments](https://www.financedigest.com/covid-19-makes-the-case-for-technology-and-automation-for-business-development-in-professional-services.html "Covid-19 Makes the Case for Technology and Automation for Business Development in Professional Services") can still be pieced together to create the basis of a company’s R&D Tax Credit claim accurately enough.

**What R&D projects are you looking to capture?**

To make an application for R&D Tax Credits, you must expressly outline exactly what R&D activities took place and what you believe your qualifying costs to be, as defined by the [Department for Business, Energy and Industrial Strategy](https://www.gov.uk/government/organisations/department-for-business-energy-and-industrial-strategy). The main [cost categories are company](https://www.financedigest.com/factbox-companies-count-the-cost-of-ditching-russia.html "Factbox – Companies count the cost of ditching Russia") employees, subcontracted R&D, consumables and external workers such as agency temps.

It is a legal requirement that you attribute these costs to your eligible R&D. When you read through the guidelines you’ll [see phrases like ‘just and reasonable apportionment’ and ‘appropriate proportion’ which simply mean you need](https://www.financedigest.com/boes-pill-sees-need-for-further-interest-rate-rises.html "BoE’s Pill sees need for further interest rate rises") to work out the attributable time and expenses that were solely committed to R&D activities. If you’re still unclear, we’ll be happy to help you with this.

**What level and type of R&D record-keeping does HMRC expect?**

The government’s [Corporate Intangibles Research and Development (CIRD) manual](https://www.gov.uk/hmrc-internal-manuals/corporate-intangibles-research-and-development-manual/cird80000) produced by HMRC offers full guidance on how claims for R&D Tax Credits are reviewed. It’s worth nothing here that actually no specific requirements to keep records for R&D purposes have been included. Having said this, over recent years there has been an apparent [shift in HMRC’s stance](https://www.financedigest.com/russia-shifts-stance-on-hospital-bombing-that-sparked-world-outrage.html "Russia shifts stance on hospital bombing that sparked world outrage") regarding more formal record-keeping expectations, and it’s within its rights of course to update its requirements at any time. Increasingly, HMRC is expecting to see up-to-date, relevant documentary evidence which can be submitted to support an R&D Tax Credit claim. Indeed, as such [tax reliefs](https://www.financedigest.com/what-is-inheritance-tax-share-loss-relief.html "What is inheritance tax share loss relief?") are courtesy of the public purse (and as we all know, public money is not exactly free-flowing these days), it’s not exactly unreasonable for HMRC to require good quality record-keeping. However, in practice there is a little flexibility with regard to companies that are submitting a claim for the very first time.

**So what’s the tricky bit?**

The main thing to watch out for when preparing a claim is with regard to the [time that has passed since](https://www.financedigest.com/sterling-slides-below-1-15-for-first-time-since-2020.html "Sterling slides below .15 for first time since 2020") the R&D activity took place. As companies are allowed to claim for the two preceding accounting periods, they may inadvertently be looking at projects that occurred before this time (after all, the years go by so fast!). Be careful, as it’s easy to miss the deadline for a claim and therefore not be able to fully maximise its value.

**How up-to-date do company records need to be?**

When it comes to capturing R&D projects, nothing really beats record-keeping in real-time. From HMRC’s perspective it puts your company in a better light as it appears to be a more diligent [way of working](https://www.financedigest.com/five-ways-to-embrace-hybrid-working.html "Five Ways to Embrace Hybrid-Working") with less room for errors. This again can often increase the value of a [company’s](https://www.financedigest.com/game-company-roblox-enabled-girls-sexual-exploitation-lawsuit-claims.html "Game company Roblox enabled girl’s sexual exploitation, lawsuit claims") claim compared to claims that rely on estimates.

How records are put together largely depends on the company and its needs. A timesheet [system seems to currently](https://www.financedigest.com/automotive-active-safety-system-market-2015-scope-of-current-and-future-industry-2025.html "Automotive Active Safety System Market 2015 | Scope of Current and Future Industry 2025") be HMRC’s preferred method however this may not always be possible. An alternative way would be to submit a quarterly review of R&D activities undertaken, complete with additional explanation regarding the nature of the work.


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