R&D Tax Incentive — Are you Claiming Enough?
Every year we assist many companies in their application to obtain benefits from the R&D Tax Incentive scheme and we consistently find that there is a tendency to UNDERSTATE the amount of time that management and staff legitimately spend on R&D activities. This arises from two main areas:
1. Not Including the “Preparatory Time”
The R&D process (and the time clock) starts when a company member starts to solve a problem i.e. how can I improve that product? How can I improve that service? How can I improve that process? Developing the conceptual framework (thinking time) is the first step in the R&D process and should be used in calculating eligible expenditure. In fact, at any stage during the process any “thinking time” associated during the process should be recorded as R&D expenditure.
2. Only Allocating “Direct R&D Time” and not Including the Appropriate Share of Non-productive (indirect time)
It is nearly impossible to allocate every minute of a working day to a particular activity or task. There are many ‘enabling functions’ that are performed that do not neatly fit into a specific task. These might include items such as computer set up, answering emails, attending general staff meetings, toilet breaks etc. For example, if a staff member is paid to work a 40 hour week and they have 2 main tasks — R&D and quality control (QC) it may be possible to allocate 10 hours to R&D and say 20 hours to QC leaving 10 hours unallocated. Given that the company pays for 40 hours it is only reasonable to allocate a proportion of the unallocated time to R&D. In this example, the allocation should be 10/30 x 10 = 3.33 hours.