22 OCT 2026 • 4 MIN READ

How to get your R&D record-keeping right

Image showing project trcking cards to reflect one of the record-keeping requirements for R&D tax credit or loss claims.

If you’re planning to claim the R&D Tax Incentive (RDTI) or cash out R&D tax losses (RDTL), Inland Revenue expects to see that your project was planned, tracked and kept separate from everyday operations. The good news is that it doesn’t have to be complicated.

Here’s what you need in place so your records are ready when it’s time for your accountant to organise your R&D claim.

1 Track your R&D project as it happens

Inland Revenue requires tracking contemporaneously, which means as it happens not pieced together at the end of the financial year. Because of this, we recommend building a system where documentation is a standard part of your R&D process.

Project logs: use whatever system works. This can include project management tools like Jira or Asana, technical design documents, git commits or lab notebooks.
Evidence of what hasn’t worked: while this may sound counterintuitive, keeping records of what didn’t work is the best proof for why there’s a scientific or technological uncertainty that your R&D is trying to solve. Examples include failed tests, code that crashed or prototypes that fell short.
Minutes and notes: document any big decisions or project pivots. It doesn’t have to be a well-polished summary. Meeting notes or a dedicated chat channel (like a Google space or Slack) is fine.

2 Set up your accounting software to keep R&D costs separate

If you’re running multiple research and development projects or you and your team are doing R&D alongside other work, your R&D-related spending needs to be tracked and be easy to report out of your accounting software.

In Xero, you can use either a tracking category or Xero projects to do this.

Create an R&D tracking category (or project if your sub includes Xero projects)
Add each project as an option: if you have multiple projects, list each separately e.g. Project A, Project B
Code costs as you go: when you do your bookkeeping, assign bills, receipts, contractor invoices and team pay (for related R&D hours) to the correct project

The main aim is to have a tidy project-by-project record of your R&D costs and where relevant, kept separate from any business-as-usual expenditure.

3. Record staff R&D time

Wages are often the biggest part of an R&D claim which makes them the most likely to be scrutinised by Inland Revenue. Rough estimates like “Joe spent about half a year on this” won’t be enough. It needs to be specific and well-documented.

Timesheets: anyone working on the project should log their hours and show a clear split between core R&D activities and any business-as-usual work.
Role clarity: it’s important to keep a record of the professionals working on the R&D such as engineers, developers or scientists. Hours worked by admin or marketing personnel are generally not eligible as part of an R&D claim.

If daily timesheets feel like a pain, start small. A weekly entry is far better than not logging anything at all.

4 Get your contractor and third-party paperwork right

If you use contractors or other third parties as part of the R&D project their paperwork needs to show exactly what they did for you.

Scope: use a signed contract or statement of work that explains the experiment or development work the contractor is doing
Itemised invoices: ask the contractor to list hours and the specific tasks they completed when they invoice you. A flat monthly retainer with a generic description makes it hard to show what the cost of their labour relates to
Confirm intellectual property (IP) ownership: make sure your contracts state that your business keeps the IP of any work the contractor or third party carries out. Ownership of the experiment/development results are needed for tax claim eligibility.

Summary: your record-keeping checklist

To summarise everything we’ve discussed, here’s a quick cheat sheet of everything you should have in place to support any R&D tax credit or loss claim.

Project log or timeline that gets updated as work progresses
Records of failed tests or dead ends
Key decisions captured as meeting notes or in a dedicated team chat
R&D tracking category set up in your accounting software
Costs coded to the tracking category or project at the time of entry (not caught up later in the year)
Staff timesheets with separation of R&D hours from other work hours
Contractors and third parties have a signed scope of work and provide itemised invoices
Contracts confirm your business owns the IP for any work done by employees, contractors or other third parties

Good record-keeping takes a lot of discipline but it plays a key role in making your R&D claim faster to prepare and easier to defend against any IRD scrutiny. If you’re planning an R&D claim or want a hand with the process, get in touch with us. We can help get your systems ready and walk your through the process.

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