R&D Record-Keeping for Engineering Projects

Engineering projects already produce records. Drawings change. Tests fail. Materials are ordered. Technical decisions are discussed in meetings and emails.

The difficulty comes when that evidence is spread across personal inboxes, shared drives, accounting systems and the memories of people who have moved on. A year later, the technical team may remember the project but struggle to show exactly what happened and when.

Good record-keeping does not decide whether a project qualifies for R&D Tax Relief. It makes the technical facts and cost methodology visible. HMRC’s recommended approach to R&D record-keeping says companies do not need unnecessary records or expensive tracking systems. The records should be sufficient and proportionate.

Who this applies to

• Engineering and manufacturing SMEs undertaking technical development work.
• Technical directors and project leads responsible for engineering evidence.
• Finance teams compiling project costs and staff allocations.
• Accountants and advisers supporting R&D Tax Relief claims.
• Companies reviewing ongoing or completed projects before preparing a claim.

The two evidence trails your file needs

A sound project file connects two separate evidence trails.

1. The technical evidence

This shows the project as it happened. It records the starting point, the technical objective, the problems encountered, the work performed and the outcome. HMRC’s manual on R&D project records lists planning material, reviews of existing knowledge, project stages and progress reports as examples of evidence that may be available.

2. The financial evidence

This shows how each figure considered for the claim was derived. It should connect payroll records, timesheets or other staff allocations, invoices, contracts, purchase records and cost calculations to the relevant project and accounting period.

Neither file should sit in isolation. If the technical file says testing stopped in September, the cost calculation should not continue allocating test activity to the project without a clear explanation.

R&D record-keeping checklist by project stage

Project stage	Technical records	Financial records
Before work starts	Project aim, technical baseline, intended advance, known uncertainties, proposed method and competent professional	Project code, budget, expected people, suppliers and cost categories
During the project	Design versions, calculations, test plans, results, photographs, failures, meeting notes and decisions	Staff time, payroll data, purchase invoices, consumable usage, contracts, payments and allocation notes
At a milestone or project end	Outcome, unresolved issues, lessons learned, final test data and dates when relevant technical work changed or stopped	Cost reconciliation, exclusions, corrections and approval of any estimates
When preparing the claim	Project description, competent professional’s reasoning and references to supporting evidence	Claim methodology, apportionments, sampling, supporting schedules and reconciliation to the accounts

Checklist 1: identify the project clearly

Give each project a consistent name or code. Record its commercial context separately from its technical scope. A customer order may explain why the work began, but the order itself does not explain the engineering work.

Your opening record should cover:

• The project name, internal code and responsible project lead.
• The start date and relevant milestones.
• The field and sub-field of science or technology.
• The technical baseline at the start of the work.
• The advance the team intended to seek.
• The specific scientific or technological uncertainties identified.
• The proposed work, tests or analysis.
• The people expected to contribute and their roles.

This does not need to be a lengthy report. HMRC states that a page of bullet points may be enough for a smaller project where it covers the relevant steps.

Checklist 2: record the competent professional

Every project assessment needs input from a competent professional in the relevant field. This is someone with suitable knowledge and experience who can assess the existing state of the field and explain the technical basis of the project.

HMRC’s competent professional guidance says the person should understand the relevant principles, know the current state of knowledge and have an appropriate track record.

Keep a short record of:

• The person’s name, role and relevant field.
• Their qualifications, experience and project background.
• Their understanding of the technical baseline.
• The advance and uncertainties they identified.
• The reasoning supporting their assessment.
• The date on which the assessment was made or reviewed.

A job title alone is not enough. The record should explain why that person has relevant competence for this project.

Checklist 3: capture engineering evidence as work progresses

Use records your engineering team already creates. The aim is not to duplicate the project file. It is to preserve the material that explains the technical work.

• CAD drawings, revision histories and design calculations.
• Test plans, test conditions, raw results and analysis.
• Photographs of prototypes, rigs and failed components.
• Materials specifications and supplier technical data.
• Simulation outputs and relevant software version histories.
• Technical meeting notes and decision logs.
• Emails discussing the problem, possible approaches and results.
• Records of failed, abandoned or inconclusive approaches.
• Changes to the project scope, method or technical objective.

HMRC may consider drawings, designs, test results, prototype photographs, meeting minutes and emails during a compliance check. No single document is decisive. The combined record should show a coherent sequence of work.

Checklist 4: connect people and costs to the work

The project file should explain who did what and when. Staff records may include timesheets, project diaries, work orders, job cards, calendars or another reliable allocation method. If a person works across several activities, record the basis used to divide their time.

For costs considered in the claim, retain the underlying evidence and the calculation. HMRC’s manual gives examples of expense records that may be useful, including payroll records, staff lists, invoices, contracts, payment evidence and internal cost codes.

• Staff: payroll reports, employer pension records, role descriptions and time allocations.
• Consumables: purchase invoices, stock issues, bills of materials and records of how items were used.
• Subcontractors: contracts, statements of work, invoices, payment records and evidence of the work performed.
• Externally provided workers: supplier agreements, invoices, payment evidence and supervision records.
• Software, data and cloud costs: contracts, itemised bills, user or project allocations and internal cost codes.

These records do not mean a cost qualifies. The tax rules still need to be applied. Their purpose is to show what the expenditure was, when it was incurred and how it relates to the project.

Checklist 5: document estimates and apportionments

Not every accounting system records costs by R&D project. HMRC accepts that some figures may be estimated or apportioned, but the method should be based on evidence and reason.

For every material estimate, record:

• The total cost from which the allocation starts.
• The source document or accounting report.
• The allocation basis used.
• The evidence supporting that basis.
• Any exclusions or adjustments.
• Who prepared and reviewed the calculation.

Avoid unexplained percentages. If 35% of an engineer’s time is allocated to a project, the file should show how 35% was reached.

Checklist 6: prepare for the Additional Information Form

An Additional Information Form is mandatory for new R&D claims. It must be submitted before, or on the same day as, the Company Tax Return. If both are sent on the same day, HMRC says the form must be sent first.

The form asks for project descriptions covering the field, baseline, advance, uncertainties, work undertaken and project costs. HMRC’s Additional Information Form guidance also confirms that companies may provide a separate report explaining the claim methodology, sampling and competent professionals.

Save a copy of the completed form and the submission reference. HMRC states that the online form cannot be accessed after submission.

What to do if the project has already started

Do not create documents that pretend to be contemporary. Start by gathering the records that genuinely exist, including drawings, test data, emails, invoices, calendars and meeting notes.

Interview the people who performed the work while their recollection is still clear. Label any retrospective note with its author, preparation date and source material. Record gaps honestly.

HMRC says a detailed explanation prepared later may be acceptable in some cases, but written records created during the project usually make the position easier to assess.

How long should records be kept?

GOV.UK states that a company must generally keep accounting records for six years from the end of the financial year to which they relate. Records may need to be kept longer where, for example, a transaction spans more than one accounting period, the Company Tax Return was filed late or HMRC has opened a compliance check.

Keep the complete R&D claim file together. This should include the submitted forms, confirmation references, technical evidence, calculations, source records, review notes and final Company Tax Return.

Worked example: a high-temperature pump project

An engineering SME spends five months developing a pump assembly for a high-temperature, corrosive process. The figures below are illustrative. They show the records assembled for review, not an amount that has been confirmed as qualifying expenditure.

At the start, the technical director creates a one-page brief recording the existing pump performance, the intended improvement, the seal deformation issue and the planned thermal-cycle tests. During the project, the team keeps CAD revisions, nine test records, photographs of three prototype builds and notes explaining why two approaches were stopped.

The time records show:

• Senior design engineer: 420 hours.
• Test engineer: 210 hours.
• Manufacturing engineer: 90 hours.
• Total recorded project time: 720 hours.

Finance links those hours to payroll records and calculates £27,214 of staffing cost for review. It also identifies £18,400 of prototype materials, £9,600 of specialist testing and £2,100 of simulation software supported by invoices and project records.

The result is a £57,314 cost pool with a traceable source for each figure. The tax analysis comes next. Each category must still be tested against the relevant scheme rules, and non-qualifying amounts must be removed before a claim is made.

Lexmore’s View

Good records do not turn routine engineering into qualifying R&D. They allow your company, your adviser and HMRC to assess the work using evidence rather than memory.

Record the aim. Record the work. Record the cost.

How Lexmore can help with R&D evidence

Lexmore helps engineering businesses review existing project evidence, design proportionate record-keeping processes and connect technical records with claim calculations. We can also provide a free claim assurance appraisal before you decide how to proceed.

Watch this space. The Lexmore client portal is coming soon. It will let you store project evidence against the relevant claim period as the work progresses.

R&D claims prepared by Lexmore include HMRC compliance protection as standard, subject to our service terms. Read more about our R&D compliance and enquiry support, or see our guide to what to expect during an R&D enquiry.

References

• HMRC: Recommended approach to R&D claims and record-keeping
• HMRC: Importance of a competent professional
• HMRC manual CIRD80560: R&D records
• HMRC manual CIRD80570: Expense records
• HMRC: Additional Information Form guidance
• GOV.UK: Company and accounting records