I’ve been working in R&D for over 11 years now and over that time have worked with a lot of different companies from different industries of all shapes and sizes.
As part of that journey, I’ve seen some things that have worked well and some things that haven’t worked so well and so I wanted to share with you some of my tips to ensuring you have a successful outcome with your R&D claim.
STEP 1: TRACK YOUR TIME
Tracking your time well is critical to ensuring you allocate the correct amount of expenditure to your R&D grant application.
This becomes far more important when you’re claiming either your own salary in the business or you have employees undertaking R&D activities for you.
The gold standard of tracking your time would be to make note of what you’re doing every minute of every hour of every day on a daily basis and store that information in a timesheet app or software platform of some description. However, while this may be expected of large corporates, the ATO will give some leeway for small businesses that don’t have the resources to allocate to expensive software programs or can’t afford the additional admin.
So, if you’re running a small business, with less than 5 staff, there’s a minimum I would recommend, which is to make note of the time that you and each of your staff have spent on R&D activities each month and split it on a percentage basis across each of the R&D activities you’ve undertaken.
For example, if you’re conducting 3 R&D experiments in a particular month, your time tracking for that month might be:
- R&D experiment 1: 50%
- R&D experiment 2: 20%
- R&D experiment 3: 5%
- Non-R&D time: 25%
This can be done using estimates in arrears for the month just gone. If you are doing this on a regular basis and keeping contemporaneous records as you go, this will add significant weight to the validity of your R&D claim at the end of the year while avoiding placing a huge administrative burden onto your business.
STEP 2: DOCUMENT YOUR PROCESS
One of the most important things you can do when you’re claiming R&D is to regularly document the progress you’re making on your R&D projects.
The important things to document are:
- Searches for current levels of knowledge available out there
- Hypotheses or aims for your planned experiments
- What results you are getting as you go
- Any changes in your experimental approach or pivots to attempt a different angle on the R&D
I recommend that small businesses take some time at least every 3 months to write a status update on what has happened in each R&D project in the last quarter as a minimum. This process should also be done after significant project milestones such as achieving an important result or having to scrap consumables due to a failure. If multiple iterations of an experiment are conducted throughout the year, I would also recommend documenting each of the iterations separately.
Having this substantiation on file at the end of the financial year will add significant strength to your R&D argument and give you that much more chance of success at the end of the day.
I have a template available that is suited for this exact task, so if you’re interested and want a helping hand in doing this for your business, please reach out to me.
STEP 3: TAKE PHOTOS AND VIDEOS
One of the quickest and easiest ways to rapidly increase your chances of R&D success, is to take lots of photos and videos of your project unfolding.
Formal report writing and copious note taking is great, but a picture is worth 1,000 words and a video is gold dust. Informal evidence, therefore, can be very powerful.
In communicating with AusIndustry about an R&D project and how it has been conducted, having lots of really clear visual evidence of the project, what results have been achieved and, importantly, what failures have occurred and why, can really make it very clear from the start and save a lot of time and energy attempting to explain these things verbally.
My recommendation is always to have a folder on your computer labelled “R&D” and to dump as much evidence of the project being undertaken as possible with time and date stamps on all of it.
This folder should hold lots of important stuff in it, including your documentation from Step 2, but also any scope of works documents you have between you and any contractors working on the R&D, any key invoices related to the project and anything else that might substantiate what’s been happening.
It’s a nice relief to know that if you do get audited down the track, that you have this pile of data to call on as and when it’s needed to back up your claim.
STEP 4: SIMPLIFY YOUR EXPENSES
One of the best, and simplest, tips I give to my R&D clients is to ensure that you’re tracking your R&D expenditure in the clearest way possible.
One very easy way to do this in your accounting software is to set up an expenditure account or line item on your P&L specifically allocated to R&D expenditure or one account for each project. Then, when it’s time to do your bookkeeping reconciliations, allocate all of the expenditure directly related to any R&D projects to these accounts.
This can be done easily in Xero by clicking on “Accounting” across the top banner, then “Advanced” in the drop-down menu, then clicking on “Chart of Accounts” on the right hand side, then clicking the “+ Add Account” button in the top left hand corner and filling in the necessary details.
It’s not to say that if you haven’t done this that you will miss out in any way or your expenditure can’t be calculated accurately, it’s just that this is a nice little way to organise things and also help keep everyone in the business conscious that R&D is an important part of your strategy and it’s important to be aware of it. It is also nice to be able to check your P&L throughout the financial year and instantly see how much you’ve spent directly on R&D before adding in any other indirect expenses such as salaries and wages, contractors, overheads and depreciation to name a few.
So, these are my top tips for creating R&D success in your business. If you want to learn more about anything I’ve mentioned here or would just like an obligation free chat about your business and whether you might be eligible, please drop us a line.