R&D Tax Incentive Audit Survival
Workshops, Training and Process Framework
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Workshopping your R&D incentive compliance
I’ve found that putting in place prescriptive templates that give your team the ‘precise’ language and format needed, has been the best way to ensure a large team can be consistent and compliant. As part of the workshops I deliver to R&D teams, I provide them with a framework and templates with this type of prescriptive language so your team can trust that they are being consistent and compliant in the way they approach the work.
Language alignment to the wording of the legislation
I believe that most failures are not because of the quality of the claim document but rather the degree of compliance with the language in legislation. Key is being able to show a scientific approach to tackling the risk of undertaking costly R&D through experimentation, iteration, and a systematic progression to a conclusion that may or may not be fruitful is critical.
Without the records, many companies such as AirTasker have found out, the Audit Process can be difficult when you are not prepared.
What is needed to be compliant is not necessarily a skill set or knowledge that your team will already have. They are experts, yes, but not in this specific scientific expression of experimentation and outcomes language that underpins some of the compliance requirements for the R&D claims.
Covering off your risk
With all the best intentions, without experience in technical R&D compliance, it’s hard to be 100% sure you are covered and doing all the right things with your R&D. I can help you gain the peace of mind you need to report on this risk as being ‘managed.’ I offer team workshops that will cover the following:
1. The complete compliance requirements – from processes to documentation
2. Templates/ and wording to follow
3. How to assess and document your upfront hypothesis
4. How to record the results.
Unexpected windfalls when reviewing your R&D Tax Compliance
Doing a review of your documentation, processes, and cost recording to assess whether it is compliant is not all gloom and doom.
What we have found is that quite a few companies have discovered, as part of their review activities, that they could, in fact, be claiming more than they thought!
During the workshops, we run through your projects, and often what happens is, it reveals that there are more opportunities available for claiming.
This is because you have understood the basic scope, but the nuances are not necessarily applied. The workshop environment allows your team the opportunity to discuss and explore the full extent of the R&D opportunities.
The workshops are a half-day, and we will use your project as the case study, so not only does your team have context with their training, but it also acts a ‘sense’ check that you’ve gotten your rationale correct.
I believe the best outcome of the workshops is generally:
a. An aligned team on the process, language, and format
b. A renewed and more in-depth understanding of what they can use the R&D for
c. A self-diagnosis and audit of how you are currently doing things.
The workshop provides an excellent way to align the slight variation or differences between team members that tend to creep in overtime.
It’s a win-win for your team and a positive to be reporting on your risk management scorecard!
If you’d like to chat about what’s needed, feel free to give me a call on 0403398807. If you’d like to know more about setting a workshop for your team, let me know, and I’ll send you through some additional information.
What clients are saying?
Request a R&D Tax Audit Survival 4 hour Workshop/Training Session.
Find out how to improve cashflow, R&D effectiveness, and audit readiness.
(Bonus R&D Documentation Templates
valued at $495.00)
* Melbourne. Other cities subject to availability
Why ENHANCE YOUR R&D RECORD-KEEPING?
Since the R&D Tax Incentive is based on self-assessment, businesses and their advisors must work together to ensure that record-keeping is sufficient to substantiate a claim. Did you know that enhanced record-keeping will allow you to:
- Claim more Core R&D – R&D associated with generating new knowledge,
- Claim more Supporting R&D – R&D required to facilitate the Core R&D
- Claim more Supporting Activities – Activities necessary to facilitate R&D such as HR, Manufacturing etc.
6 StepS TO MAXIMISE R&D Tax CLAIMS
Did you know that if you do all the record-keeping needed to survive an audit you will generally increase your claim between 10% and 30% because you will be able to justify all R&D related costs.
By following the steps below you can reduce risk and increase your claim:
Framework Objective 1. Achieve Compliance Readiness
Step 1 – Develop a Cross-department R&D Tax Compliance Manual,
Step 2 – Implement compliant Product Planning and Record-Keeping,
Step 3 – Establish Management Systems to automate Record-Keeping,
Framework Objective 2. Continuously Improve and reduce risk
Step 4 – Periodic Spot Checks of Project/Activity/Task Record-Keeping,
Step 5 – Periodic Detailed Review and Auditing of Project/Activity/Task Record-Keeping
Step 6 – Periodic Compliance Assessment and Reporting.
Achieve Compliance Readiness
Businesses need to achieve Compliance Readiness in order to receive maximum benefits from the R&D Tax Incentive by:
- Diligent identification and confirmation of eligible R&D Projects and Activities.
- Having the appropriate systems and processes to effectively track, evaluate and record R&D expenditure.
Compliance Readiness will allow businesses to make R&D submissions with increased confidence that an AusIndustry compliance assurance review will be able to verify that the R&D is eligible, and that the claims are justifiable.
Step 1- Cross-department R&D Manual
Our consultants can assist with establishing a cross-department R&D Manual for record-keeping practices in order to ensure end-to-end processes satisfy the R&D Tax Incentive guidelines and produce the required records.
Established processes will ensure records are consistent from year to year and can be reviewed and audited, with any process improvements able to be captured as amendments to the R&D Manual.
The R&D Manual will cover the responsibilities of each department in ensuring both Core and Supporting R&D is properly planned, managed, measured and documented. It will incorporate record-keeping into existing processes and practices so that they do not add undue overhead and avoid resistance from staff.
Step 2- Compliant Planning and Record-Keeping
Our consultants will ensure that compliant R&D planning and record-keeping can become an important part of a company’s operations because it:
- Enhances the likelihood of successful R&D outcomes by encouraging companies to think strategically about their R&D activities as a critical and ongoing part of their business by providing a focus and structure to R&D activities.
- Assists companies to manage their tax risk and establish compliance with the program’s requirements through review and audits.
- Allows companies to easily and effectively prepare their application for registration and provide clear and accurate descriptions of activities and the reasons for eligibility.
- Automated record-keeping embedded in the day to day business operations for progress monitoring, and experimental results to be reviewed and plans adjusted to keep R&D on track and cost effective.
A compliant set of processes and records need to have the following attributes
- Satisfy R&D Tax Incentive requirements as per R&D Manual for R&D Project Planning and Management Processes.
- The R&D Manual will require that you identify and assess projects prior to commencement and capture records at the time R&D is being conducted.
- To ensure that that records of how eligibility was determined are documented, the R&D Manual will require that the criteria used be clearly captured.
- The R&D Manual will clearly link R&D Activities with expenditure using tools and systems, so that reports can be routinely produced and monitored.
- Records need to clearly and sufficiently demonstrate that the claimed R&D Activities took place and met the definition of either Core R&D or Supporting R&D.
Step 3 - Establish Management Systems and Processes
Our consultants understand that the R&D Tax Incentive requires a strong link between the management of a company’s R&D portfolio and its annual tax return process.
Integrated record-keeping and appropriate business systems ensure that there is a strong link between day to day operations and claimed expenditure so that this can be evidenced as required.
Appropriate use of selected systems and processes can reduce a company’s compliance costs and risks should they be selected by AusIndustry for a R&D Tax Incentive risk review.
Systems and processes include:
- Product Planning Processes – Determine eligible R&D goals and investment ROI.
- Project Planning Processes – Plan Work Breakdown, resources and timelines
- Work Assignment Systems – Assign Tasks and Track progress
- Knowledge Management Systems – Record knowledge search and design decisions
- Time & Cost Tracking Systems – Track costs directly to activity tasks in timesheets
- Experimental result tracking systems – Conduct experiments and evaluate against objectives
- Financial Reporting Systems – Report expenditure by Project, Activity and Tasks
Continuous Improvement TO REDUCE Risk
A periodic review of R&D Incentive record-keeping will mitigate the possibility of an AusIndustry R&D Tax Incentive risk review being unable to be substantiated.
A report of adherence and improvements resulting from the reviews will not only be a valuable record in itself, demonstrating commitment to compliance, but will make recommendations for continuous improvement of the R&D Manual and processes, further mitigating risk.
Recommended review types:
- Periodic Spot Checks
- Periodic Detailed Reviews
- Periodic Compliance Assessment and Reporting
Step 3 - Periodic Spot Checks of Record-keeping
The R&D Manual will specify the records to be kept through the R&D lifecycle from Planning and Implementation to Experimentation and Evaluation.
Our consultants can undertake periodic spot checks to ensure that records have been produced. For example, this could consist of examining one project and activity monthly to ensure records are being maintained.
Step 4 - Periodic Detailed Review & Auditing of Record-Keeping
In addition to spot checking against the R&D manual, our consultants can undertake a detailed sighting of the records on paper and in systems for one or more Projects or Activities to determine whether the detailed process steps are being followed, therefore validating that record keeping down to the day to day work level is being performed.
Our consultants can undertake periodic detailed reviews and audits to ensure that records have been produced. For example, this could consist of examining one or more projects and their activities in detail on a quarterly basis to ensure records are being maintained.
Step 6 - Periodic Compliance Assessment and Reporting
Our consultants can provide a report on how compliant the record-keeping has been since the last review and identify and gaps or lapses that require improvement.
Observations will be classified into:
- Critical – Immediate action is required as records required by the R&D Manual are missing and must be created as a matter of urgency.
- High – R&D Manual has an oversight and needs to be improved, or a process needs to be improved.
- Low – Action is needed in the next period to ensure Record-Keep adherence improves.
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