The calendar is down to its last few pages. For most organizations that means budgets, year-end close and, for anyone doing research and development, one more thing: making sure this year’s R&D tax credit claim will hold up when someone looks at it closely.
Governments all over the world want innovation to happen inside their borders. The United States, Canada, the UK, Australia and much of the European Union all offer research incentives, often at both the national and the state or provincial level. In Canada we have SR&ED federally and additional credits in provinces like Quebec. In the US there’s the federal research credit along with many state programs. The money can be significant. But every one of these programs comes with the same expectation: prove it.
Two reviews, not one
An R&D claim is usually examined twice. The first review is technical: was the work actually research and development as the jurisdiction defines it? The second review is financial, and this is where many organizations get caught out. We call it the Triangle Audit.
The Triangle Audit checks that three sets of records agree with each other and with the tax rules:
- Payroll and HR – who was paid, how much, and whether they’re eligible for the program
- Timesheets – what each of those people actually worked on, and for how long
- Project management – the R&D projects and tasks the claim is built on
If those three corners don’t line up, the claim is in trouble regardless of how innovative the work was. A brilliant engineering breakthrough documented with a spreadsheet someone rebuilt in January from memory is not a strong position to be in.
What reviewers are looking for
The details vary from one jurisdiction to the next, but a few requirements come up over and over:
- Time recorded at a sufficient level of detail, usually by task rather than just by project
- Staff who are eligible for the specific program, often based on where they live and whether their work is already funded by another program
- Timesheet totals that reconcile with what finance reports
- An audit trail showing the records weren’t adjusted after the fact
The timesheet sits right in the middle of all of this. It’s the record that connects the person on the payroll to the task in the project plan.
How TimeControl can help
Organizations have been using TimeControl to support R&D claims for as long as the product has existed. Because it’s an activity-based timesheet, it captures time against the same project and task structure your R&D work is planned in, and it keeps an auditable history of every entry and approval.
TimeControl can be configured to track several requirements at once, so the same timesheet that supports your R&D claim can also feed payroll, billing and project reporting. User-defined fields let you tag people and activities by program eligibility. Pre-built links to project management tools like Oracle Primavera, Microsoft Project, BrightWork and Birdview, and to finance systems like Oracle, SAP and Microsoft Dynamics, mean the three corners of the triangle are drawing from connected data rather than from separate silos.
A short year-end checklist
Before the year closes, it’s worth asking:
- Is every R&D hour this year recorded against a specific task?
- Can you show which employees are eligible, and for which program?
- Do your timesheet totals match payroll for the same people and periods?
- Are approvals complete, and is there a record of any changes?
- If an auditor asked tomorrow, could you produce all three corners of the triangle?
If any of those answers is “not quite,” now is a much better time to find out than during an audit.
Resources to help
We’ve gathered everything we’ve learned into the R&D Tax Credits page on the TimeControl website. There you’ll find:
- Our white paper, R&D Tax Credits and TimeControl, with a deeper look at the Triangle Audit
- Slides and a recorded webcast on TimeControl and R&D tax credits
- Links to government resources, including the IRS Research Credit Claims Audit Techniques Guide, the CRA’s SR&ED program and Revenu Québec
If you’d like to talk through your own situation, contact a TimeControl Specialist Your technical teams should be spending their time innovating, not reconstructing last year’s timesheets.
TimeControl and TimeControl Industrial are on-premise versions which are both available as in-the-cloud subscriptions as TimeControl Online and TimeControl Industrial Online. We are committed to continue to sell, support and evolve the on-premise versions. The code-base of the on-premise TimeControls and the Online TimeControls is the same so new editions of one mean enhancements in both.
Unlike many timesheet systems, TimeControl maintains distinct tables for Users, Employees and Resources. This is deliberate and allows for highly defined interaction with Project Management and corporate Finance systems. Some timesheet systems are created with the premise that all users are also employees, and all employees are also identified as a resource. This is common in a small IT business but project management definitions are often more complex and this led us to define these three tables separately from the very beginning of TimeControl.
This is a project that HMS has been working on since last November and on October 14th after 11 months of waiting, it is finally coming to fruition.
When TimeControl first got started in 1994, we responded to the most common demands for project-oriented timesheets. The first couple of versions of TimeControl had only weekly timesheets.
We’re delighted to see TimeControl featured in an article by XRaised this month. The article is available for access via LinkedIn on the XRaised blog.
We are delighted to find TimeControl at the top of these internet Best in their Class lists:
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