If you are doing innovative work in Australia, and taking advantage of the R&D Tax Incentive, then you are required to keep detailed records relating to:
1. Product strategy with a project roadmap and new knowledge assessed
2. R&D project documentation with project hypothesis explained
- R&D project eligibility proof for core R&D activity documentation
- R&D project timelines, plans and budgets that have been monitored.
3. R&D work records that track time and materials as core and supporting
4. Experiment plans to prove the hypothesis fully documented
5. Experiments conducted and evidence recorded with the results evaluated/reported
6. Minutes of meetings to formally evaluate results, correct, and iterate on the hypothesis
It is quite a bit of detail and why 30-50% of companies are under claiming on the amount that they could.
Your R&D Tax Consultant hand’s are tied
Some companies use an R&D tax specialist to ensure that they are maximising their claim amount. The problem with this is that the consultant can still only claim the items for which you can provide evidence. This restricts them, and there is no workaround for the lack of correct record keeping. The onus is on you to create and produce the required evidence as part of your application.
The evidence required
Most companies can easily produce spreadsheets or reports on the expenses throughout the year, however, this is only part of the required evidence. You need the documents mentioned above to show that you have been conducting R&D, treating it as R&D and evaluating it against a predetermined Hypothesis. This cannot be retrofitted, it needs to be part of your process, it needs to be thought through as you progress and need to be stored for speedy retrieval in the future.
Once most company learn how to do this, they wonder how they even contemplated spending money on R&D without the checks and balances in an optimised R&D process.
Evidence that you spent the money is not enough – it’s not considered scientific evidence you must have the scientific explanations of the
a) hypothesis – documented with how you’ll test it, known as experiments
b) Records of the outcome of the experiments, and
c) then based on the outcome, if not the result you wanted – records of updates to the hypothesis and decisions on the R&D direction.
It’s not an accountants perspective – it’s the scientific progression that matters to AusIndustry
What you don’t know is where you miss out
From our experience, on average, when a Process framework of templates is used, the claim amount increases by 30-50% by capturing previously missed expenses or activities that could have been included.
This is not only because you have all the right evidence, but also because there is a framework to check the full breadth of your work against. This is often where possible amounts for claiming are missed because the teams doing the R&D work don’t know that they should be ‘reporting’ on specific aspects of their work.
When work is captured as part of the operating processes, it becomes a much easier and complete process to document what is needed. Not to mention how much faster the actual claim process is because all the available documents can be provided to your tax consultant.
It’s not hard to master the red tape
As specialists in R&D implementation and recordkeeping, we’ve spent years perfecting the process and templates to take the pain and complexity out of the process of claiming under the R&D Tax Incentive. The templates also make it easy for you to translate your work into the scientific language and format that the Government require with templates that cover all sectors.
We have a complete set of templates available for download and further support if you wanted help to implement or simply check on how you are applying the templates to your work.
If you would like to talk more about templates, audits or implementation of your R&D program, feel free to book a 10min meeting. We also run a regular R&D Discussion Group where you can learn more from both us and other companies leveraging the R&D Tax Incentive and are looking to make the process and implementation as slick as possible.
We have several other resources that may be of interest.
> 6 Step R&D Tax Incentive Audit Survival eBook
> Orphaned Legacy Software Rescue and Maintenance eBook
> Take R&D Tax Records Self Assessment, Receive a Free Report
> Learn more: R&D Tax Incentive Compliance Requirements
Lets talk through how you get on to this quickly, book a 10min meeting.
Learn more at our R&D Discussion Group
Use the R&D Tax Checklist to self-assess your current documentation here.
Let me know how I can help.
Please take a look at our other free resources on the Softlogic Solutions website.