R&D Tax Credit: Cost and time records
One of the conditions that must be met in order to be able to deduct R&D costs is the condition of documenting and recording the costs incurred. Pursuant to Article 9(1) of the CIT Law, taxpayers are required to keep accounting records in a manner that ensures the determination of the amount of income generated, the tax base and the amount of CIT tax.
The aforementioned regulation, in addition to the general rules on record-keeping, refers directly to expenses incurred in R&D activities and indicates explicitly that taxpayers engaged in R&D activities who intend to take advantage of the preferential deduction of qualified expenses are obliged to separate in their record-keeping the expenses incurred in R&D activities. The provision in question imposes an obligation on those interested in taking advantage of the deduction to separate the costs in the records already kept, while it is not necessary to establish separate records for the purposes of the R&D deduction, it is sufficient to clearly separate them in the company’s existing cost records.
The legislator has not specified the exact method of keeping records of expenses or separating the costs incurred in R&D activities. The method chosen for record keeping should make it possible to prepare a statement of expenses in the correct amount. However, it should be remembered that such statements are necessary not only for the correct determination of the amount of costs in the CIT-8 return and CIT/BR information, but should also be clear enough to serve as evidence of the costs incurred in the course of a possible tax audit, since the burden of proving the costs incurred that have been deducted lies with the taxpayer.
In its individual interpretations, the National Tax Information Service confirms that it is sufficient to keep auxiliary records in which the taxpayer distinguishes qualified costs, while it is not required to keep comprehensive accounting records.
Acceptable and popular forms of keeping such separation of qualified costs in records are, for example, records in the form of a Microsoft Excel spreadsheet or in the form of subsidiary ledgers.
The record-keeping requirement also relates to the need to record working time spent on research and development. This obligation is related to the correct determination of the amount of employee expenses incurred. In the Tax Explanation, the Ministry of Finance clarified that the obligation to keep records of working time applies to situations in which employees carry out activities that do not only involve research and development projects. In addition, it indicated that the description of working time should include information including:
- project description;
- the start and end time of the project;
- a list of people involved in work on a particular project;
- a list of the work created in a particular project with a named assignment to a specific person performing the work.
As in the case of general records of eligible costs – there is no imposed form of keeping records of working time, depending on the size of the enterprise, the taxpayer can introduce any system.
In summary, in order to take advantage of the deduction under the R&D tax credit, it is necessary to keep records of the costs incurred and the working time of employees, but such records do not have to be kept with the help of complex IT tools, it is sufficient to include such information, for example, in an Excel spreadsheet.