How to Keep Records of R&D and Operating Expenditure
Author: Junanda ConsultingReviewed by: Junanda Service Team2026-09-19
The additional deduction for R&D expenses, the evaluation of technology-based SMEs, the recognition of high-tech enterprises and post-award R&D grants all rest on the same foundation: documentation. In practice, businesses rarely lose out because no R&D work was ever done; they lose out because no verifiable trace of that work was left behind at the time. Records of this kind cannot be assembled after the event — they take shape alongside the R&D activity itself. This article sets out the documentation requirements for R&D and operating expenditure as an actionable checklist.
Initiation Documents for R&D Projects
Whether a project can be recognised at all starts with its initiation. The materials that normally need to be prepared and filed include:
- Initiation resolution: a decision taken by the board of directors, the general manager's office meeting or the R&D management department, stating the project name, objectives, duration, budget and the person responsible.
- Project plan: the technical approach, phase breakdown, expected deliverables, and the staffing and equipment required.
- Project number: a unique number for each project, so that every subsequent document, timesheet and material requisition can be tied back to it.
Where a project is changed, suspended or completed, there should be a corresponding record of the change and a completion report, so that the file does not simply stop halfway through.
Personnel Costs
Personnel costs usually account for a large share of R&D expenditure and are also the element most likely to be questioned.
- Timesheets: R&D staff should record the hours actually spent on each project, preferably consolidated month by month.
- Allocation schedules: for staff who work on both R&D and production or operations, costs should be allocated between R&D projects and operating activity on the basis of actual hours or another reasonable measure.
- Supporting evidence: the list of R&D personnel, employment contracts, payroll records, social insurance contribution records, and qualifications or job descriptions.
Once an allocation basis has been decided, it should be applied consistently rather than changed at will.
Direct Inputs, Depreciation and Amortisation
- Material requisition notes: materials used for R&D should be supported by requisition documents stating the purpose, quantity and the project number concerned. Where offcuts, substandard items or trial products arising from R&D are sold externally, this should be handled appropriately.
- Depreciation of equipment: instruments and equipment used for R&D should be distinguishable between those used exclusively for R&D and those used in common. Shared equipment requires a reasonable allocation basis together with hour or usage records.
- Amortisation of intangible assets: software, patents and other intangible assets used for R&D likewise require a documented basis for allocation.
In deciding whether an item of expenditure can be included, three questions are worth asking first. Was it incurred for this particular R&D project? Is there a document proving that it was actually incurred? Can it be distinguished from other uses? Only when all three can be answered in the affirmative is the basis for inclusion sound. If the only available answer is that "all of this was for R&D", the position will rarely hold up under scrutiny.
Outsourced R&D and the R&D Expense Subsidiary Ledger
Where R&D is entrusted to an institution or an individual, whether in the Chinese mainland or overseas, the following should be retained:
- the commissioned R&D contract or agreement, setting out the scope of work, ownership of results and composition of fees;
- payment vouchers and invoices;
- evidence of the contractor's qualifications and R&D capability;
- where a related party is involved, attention to the arm's length principle and to the related documentation requirements.
The R&D expense subsidiary ledger is the core tool for turning scattered documents into a system.
| Level |
Purpose |
Main content |
| Project subsidiary ledger |
Aggregation by project |
Personnel costs, direct inputs, depreciation and amortisation, outsourced work, other |
| Summary schedule |
Company-wide consolidation |
Totals by project, total expenses, allocation notes |
| Vouchers and attachments |
Original evidence |
Documents, voucher numbers, corresponding ledger accounts |
The subsidiary ledger, the accounting books and the original vouchers should correspond with one another, forming a traceable chain. The format may follow the latest officially released reference template, while the basis for aggregation should follow the policy applicable in the year concerned.
A common practice is monthly reconciliation. When closing the books each month, compare the total in the R&D expense subsidiary ledger with the movements in the corresponding accounts in the accounting records, identify any difference straight away and leave a written explanation. By the time the annual filing falls due, the figures are already in place and there is no need to reconstruct documents at the last minute.
Separating R&D Expenditure from Operating Expenditure and Documenting Both
The two tests are relevance and traceability.
- Only expenditure actually incurred and directly related to R&D activity may be included.
- Shared expenditure that cannot be attributed directly requires a reproducible allocation method.
- Expenditure already charged to R&D expenses must not be claimed a second time under another heading.
- The specific scope of eligible expenditure and the items excluded are subject to the official documents applicable in the year concerned.
Records for operating expenditure call for the same discipline. For ordinary operating expenditure, the recommended documentary chain is a complete set of four documents:
- Contract or order: stating the subject matter, amount and the parties involved.
- Invoice: the title, taxpayer identification number and item description should match the contract, so as to avoid any mismatch between invoice and goods.
- Payment voucher: the bank statement or receipt.
- Acceptance note, goods receipt or issue note: evidence that the goods or services were actually delivered.
For large purchases, outsourced services and leases, written confirmation at the acceptance stage is particularly important.
Retention Periods and Custody Responsibilities
- Retention period: accounting vouchers, ledgers, financial statements and similar records are subject to statutory retention periods. Documents relating to the additional deduction for R&D expenses are best retained over a longer period in case of review; the specific periods are subject to the latest rules.
- Electronic archives: electronic vouchers, contracts and approval workflows should be reliably stored and backed up so that they remain readable, searchable and not open to arbitrary alteration.
- Division of responsibility: it is advisable to make the R&D department responsible for operational documents, the finance department for accounts and vouchers, and to designate a specific person to maintain the master register, so that nobody is left unable to say where the documents are kept.
Given staff turnover, two further steps are worth taking. The first is to maintain a master index or catalogue setting out, for each category of document, where it is stored, who is responsible for it and how long it must be kept. The second is to make a stocktake of documents a mandatory step in any handover of a key position, with a checklist signed off on both sides. In this way, the completeness of the records does not disappear when the person in charge changes.
| Stage |
Documents retained |
Responsible department |
| Initiation |
Initiation resolution, project plan, project number |
R&D |
| Execution |
Timesheets, allocation schedules, material requisitions |
R&D / HR |
| Assets |
Basis for depreciation and amortisation allocation |
Finance / Assets |
| Outsourcing |
Contract, invoice, payment voucher |
Procurement / Finance |
| Completion |
Completion report, evidence of results |
R&D |
| Accounting |
R&D expense subsidiary ledger, summary schedule |
Finance |
| Archiving |
Electronic and paper files, master index |
Finance / Administration |
Common Pitfalls
- Keeping only invoices but not contracts or acceptance notes, so that expenditure cannot be matched to a project.
- Filling in timesheets from memory after the event, producing figures that contradict attendance and payroll records.
- Running the subsidiary ledger and the accounting books as two separate tracks that cannot be reconciled.
- Failing to set an allocation basis for shared personnel or shared equipment and relying on estimates instead.
- Leaving documents scattered across personal computers and messaging apps, so that the trail breaks as soon as someone leaves.
This article is general business information prepared by Junanda Consulting. Specific policy positions, tax rates, deadlines and procedural requirements are subject to the latest official versions issued by the competent authorities. To understand how these requirements apply to your business, please contact Junanda Consulting for further information and support.
