Navigating Overhead Apportionment in R&D Tax Claims

Navigating the intricacies of R&D tax claims can be daunting, especially when it comes to overhead apportionment. Recently, concerns have arisen regarding the appropriateness of apportionment methodologies, prompting questions and uncertainties among consultants and claimants alike. In this article, we delve into the challenges faced during ATO audits and explore strategies to ensure compliance and accuracy in overhead apportionment for R&D tax claims.

Understanding Overhead Apportionment

Overhead apportionment involves allocating shared expenses between R&D and non-R&D activities to determine eligible R&D expenditure. While this process used to be generally accepted, recent ATO audits have raised concerns about the adequacy and accuracy of apportionment methodologies used by claimants.

Challenges Identified in ATO Audits

One of the primary concerns highlighted during ATO audits is the use of a 'blanket' apportionment rate for overhead expenses. This approach, often based on total headcount or full-time equivalent (FTE), may not accurately reflect the R&D effort or usage of resources within the organisation.

Strategies for Compliance

To address concerns raised during ATO audits, consultants and claimants must adopt a rigorous and granular approach to overhead apportionment. Instead of relying solely on blanket rates, consider integrating accurate recording of R&D time as a basis for apportionment. By accurately tracking R&D hours and activities, organisations can gain insights into the distribution of overhead expenses across R&D and non-R&D functions. This approach allows for a more tailored and accurate allocation of expenses, ensuring compliance with ATO guidelines and minimising the risk of audit concerns.

Why don't you recommend R&D Timesheets to your clients?

In response to the challenges highlighted in recent ATO audits regarding overhead apportionment for R&D tax claims, consider implementing R&D Timesheets. This purpose-built tool facilitates accurate recording of R&D hours, providing a solid foundation for making precise overhead apportionments. By leveraging R&D Timesheets, consultants and claimants can substantiate their calculations, enhance accuracy, and ensure compliance with ATO guidelines.

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