The R&D Wild West and HMRC (the Sheriff?) What should you do?
Over the last decade there has been a significant rise in the number of R&D Tax Credit Claim firms who appear to have sought to exploit the lucrative R&D Tax Credit schemes by targeting mainly small businesses and submitting thousands of potentially dubious claims.
MMP regularly speaks to new clients who have encountered these R&D Tax Credit 'claim chasers'. These clients often describe being relentlessly 'hounded' on the phone by these firms who promise bigger returns, faster service, easier form filling, and 'thousands of pounds of free money at no risk from HMRC' some with an app-based R&D Tax Credit form-filling provision without any professional advisor judgement or technical assessment required.
These spurious R&D Tax Credit chasers seem to have little to no regard for the policy intent of this valuable scheme, nor the eligibility of the R&D projects. And if an enquiry is opened by HMRC, some won't even stick around to defend the claim they've poorly prepared.
So how has this situation come about?
First, some uncomfortable truths surrounding R&D Tax advice.
The Tax Advice market is unregulated, meaning firms that are not members of a professional body are not governed by the professional responsibilities and ethics of that body.
Moreover some 'advisors' have no professional indemnity insurance nor hold any professional technical qualifications.
MMP fully supports The Association of Taxation Technicians (ATT) in their response to the recent R&D consultation, in which they are urging HMRC "to better combat 'rogue' advisers who inappropriately seek to maximise research and development (R&D) claims. Fraudulent claims are not just a risk for the Exchequer. If some companies receive more tax relief than they are entitled to, those who play by the rules may incorrectly feel that there is not a level playing field".
ATT President, Jeremy Coker, said "ATT members are held to strict standards of behaviour but these 'rogue' advisers may not be members of any professional body. They are quite a concern among the tax industry, and we continue to receive reports from members about purportedly specialist advisers approaching their clients trying to encourage them to make inappropriate and/or excessive claims. Both HMRC and the tax profession have concerns about how widespread the practice is. We want HMRC to consider how best to target these advisers to ensure they are held to the same standards as members of professional bodies".
Coker went on to say, "A more robust sign off for claims - with specific declarations by both the claimant and the adviser preparing the claim" (which MMP has always done) - "could help, as would education campaigns to raise awareness among claimants and their agents of what to look out for when choosing an R&D adviser and making a claim. We also support introducing a route for concerned tax advisers to report suspicions regarding inappropriate claims made; advice or promotional material sponsored by such agents."
What should HMRC do to fix this situation?
“From my vantage point, there are indeed good, helpful, well trained professional firms, that consult with, advise, and correctly file eligible and well supported legitimate claims. These clearly support the government's policy intent, respect the legislation and guidelines, and therefore perform a valuable service to both the client and HMRC" "These firms employ qualified staff with relevant technical qualifications, hold professional indemnity insurance, and respect the responsibilities and ethics demanded by the professional bodies".David Marshall - MMP Founder Director
HMRC needs to tackle the problem of these 'ambulance chasers' head on.
MMP suggests that:
HMRC bring back a minimum R&D expenditure of at least £20,000. This would cut over 25% of the total number of claims. These claims are highly unlikely to create any meaningful eligible R&D . This would allow HMRC to focus on discouraging ludicrous claims of this type.
HMRC needs to carry out a campaign of what actually constitutes eligible R&D by way of how a claim is judged in an enquiry, not the way in which eligibility is generally promoted.
HMRC should make it a requirement that a detailed report is submitted alongside any R&D Tax Relief CT600 submission. No report, no repayment.
If your provider has assured you that to claim is 'risk free', with 'free cash' waiting for you, and you're owed tens of thousands of pounds by HMRC, be very wary and be very sceptical.
You as a director are signing a claim off, not the advisor, so the risk is yours not theirs.
So we suggest you work with a team that:
- has professional indemnity insurance
- employs professionally qualified engineers and scientists
- respects professional responsibilities and ethics for tax practitioners
- is a member of HMRC's consultative committee
- has been in the business for two decades
Oh and by the way, if your previous claims have been paid out, it means just that. NOT that they have been approved, nor that an enquiry may not be opened. Time limits for this are up to 20 years if fraud is suspected.
You can contact one of our advisors who will be pleased to review your existing claim and provide an honest fee-free opinion as to its real eligibility.
Read part 2 of David's article where he delves into the figures and comments on their relevance
David is one of the founding Directors of MMP Tax.
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