For years the R&D incentives have been the most generous benefits left in the corporate tax legislation. The reputation of the R&D advisory industry has been dragged through the mud by largely unqualified (though some accountants have been the worst culprits) and often unscrupulous “experts” looking for perceived quick and easy fees, with which they’ve been allowed to be far too successful for far too long!
I’ve long been an advocate of some sort of accreditation in the sector. I love what I do and, as an engineer by background not just qualified tax advisor, I’m actually the most interested in what our clients have used the extra cash to do, what further projects can they now fund, over the 22 years I’ve done this. Instead, we tend to hear more about the incentives in a negative sense. Over cold-called, over-promised, kitchen-sink merchants, tying clients into 5-year contracts, the “PPI salespeople of tax”! It saddens and irritates me in equal measure!
It's gotten a lot worse in recent years though and I know there is a multitude of awesome R&D professionals around the country who feel and share my pain at the actions of the cowboys out there. Finally, it has got to a point where HMRC are donning the Sheriff’s badge and riding into town to deal with them.
It started with HMRC’s recruitment of 100 new R&D inspectors and then we recently had the ominous putting on hold of any R&D payments whilst they “looked into some issues”. That has now crystallised in a huge way with the issuing of “scary” letters from HMRC (dated 15 June 2022) where they have released the full wrath of their Fraud Investigation Service, targeting what they see as fraudulent claims made. The letters essentially state (paraphrasing) that they think claims are not valid and need to be withdrawn. Silence/no response will be taken as culpability and any response/defence offered will be used as evidence at potentially either tribunal or prosecution!
It has been stated in various places online/LinkedIn that these letters have only been targeted at IT claimants and claims where the TQE is under £50k only. This isn’t correct. I have learnt of larger claims than that and on engineering claims too. So, it’s not just about sector or size (though there does seem to be a leaning towards the smaller, volume, end of the market), it’s about quality. Are you REALLY doing the R&D you say you are, and have you correctly claimed the right amount of associated, claimable costs? The implication is that for 1,000s of claimants it’s a resounding “no”!
HMRC have also announced that their usual aim of processing R&D tax relief claims within 28 days will now be extended to 40 days, as they are implementing additional compliance check on all claims.
So now, more than ever, I’m urging R&D claimant companies to take a hard, honest look at themselves in terms of their claims and who they use to advise them on making them. Now is not the time, and frankly it never has been, to use a “quick and dirty” service. I will bet my “horse” on the fact that they’ll be disappearing through the saloon doors and riding off as fast as they can into the sunset once HMRC turns up.
So here are my “Top 10 red flags” to help you question if you’re getting the right help in the current environment (a mixture of service received, and marketing claims made):
- Your advisor isn’t qualified to advise on R&D. R&D is a corporate taxation relief, and your advisor should be a member of a relevant body, like the Association of Taxation Technicians or the Chartered Institute of Tax (CIOT) to be qualified to advise on it. Ask them!
- “100% success rate” – run a mile. Almost all R&D advisors have 100% success rate if getting a claim agreed is the measure. What they don’t tell you is how much got lopped off to get it over the line! This was specifically called out in the CIOT’s own guidance (issued June 2020) as “misleading” and that it “should not be included” in marketing on websites or social media.
- “HMRC approved/agreed process/methodology” – nonsense! This was also addressed in the above guidance. No one has ever (in 22 years and counting) had their methodology or approach explicitly agreed by HMRC (implied by lack of enquiry doesn’t count).
- “We SIT on the R&D Consultation Forum/Committee” – No, they don’t. the RDCF (was RDCC) meets every 6 months and is a useful catch up between HMRC and c60 industry advisors, to hear the latest updates/ideas from HMRC. Don’t over-egg the reality.
- No report provided by your advisor – Some advisors refuse to present the claimant company with the report submitted, sending it directly to HMRC. The R&D report is yours; it belongs to the claimant company. You have every right to not only see it, but you should be signing off that you are happy with the accuracy of the content. What are they trying to hide?
- No discussion with technical staff – some advisors prepare claims just from the accounts of the claimant company having never visited or even spoken to the technical staff, applying generalised percentages to staff and other cost figures. These claims have no justification of what costs have been claimed and for what projects.
- “Switching R&D advisors increases risk” – hogwash! A statement purely designed to scare you into staying put when you realise you’re not getting the service you should be. There is no basis in this statement, why would there be. Switching from an inexperienced, unqualified, R&D advisor to one who has a good reputation, can only be a good thing, right!
- Long engagement contracts – some advisors will sign you up for 5 years. Why? From experience, it’s so that you have to pay draconian termination penalties to get out of it when you realise they’re not up to scratch. I’ve heard of one advisor who makes clients sign an engagement letter up front (on the sales call) and then there is a c40% dropout rate once the first “qualification” call has then been subsequently held with someone else who allegedly is more technically qualified to decide if there is anything there to go for!
- “Every company should be claiming R&D tax credits/£X of unclaimed R&D relief – straight out of the BS marketing spiel of the cowboys. Not true and unsubstantiated figures based on spurious assumptions.
- 100% software generated claims – I have had calls from them myself, claiming to be able to fully automate the R&D claims process, some producing a “report” after simply answering a string of questions from a dropdown menu. Whilst technology undoubtedly has a place in helping to produce some elements of claims (pulling costings together, for instance) there really is no substitute for the experienced, human touch when discussing and assessing project qualification.
I know there will be more, but these are just a flavour of some of the ones I see more often than I should.
The good news coming out of the FIS involvement should be that a number of the quick-buck merchants decide it’s gotten a bit too difficult now and they won’t fancy the increased scrutiny, and good riddance!
For everyone, words of caution, tread carefully. Even more so now than before. Consider the tips above, give yourself the best chance of getting the right help and make sure your claims are more sharpshooter than rustler!
And if you have any questions please get in touch - [email protected]