On May 17th, HMRC announced that R&D Tax Credit payments have been paused whilst moderators investigate a number of potentially fraudulent claims.
Compliance within Research & Development Tax Relief has been a focus point for HMRC for some time now, and with uptake of the initiative growing year on year, HMRC is under an increasing amount of pressure to crack-down on illegitimate R&D claims.
The drastic nature of this move, however, suggests that HMRC are currently looking into significant and repeated abuse of the R&D Tax Credits scheme.
Could this investigation be the product of deep-rooted malpractice from certain R&D Tax Advisors? And if so, what does the future of the industry look like?
Let’s look at how we got here.
🔎 HMRC’s awareness of illegitimate R&D Tax Advisors
Back in November of 2021, HM Treasury’s ‘R&D Tax Reliefs’ Report outlined concern over rogue R&D Tax Credit Advisors:
“We have seen a recent emergence of R&D Advisors, who are typically not members of professional bodies, cold-calling Small & Medium Enterprises (SMEs), suggesting they could make an R&D claim. These advisers, many with no background in tax, take advantage of customers who are unfamiliar with claiming for R&D, often charging on a commission basis, and submit numerous dubious claims.”
There are several reasons why this could be happening.
Much of the innovation occurring in the UK before 2020 was put on hold whilst COVID-19 gripped the nation. This significantly limited the amount of R&D activity taking place, and therefore, hugely reduced the sum of qualifying R&D expenditure that businesses could reclaim in the two following financial years.
Now society is back up and running, businesses are understandably looking to enrich their cashflow and recoup revenue. In addition, some R&D Tax Advisors are trying to avoid the dip in claimable expenditure caused by COVID-19.
Illegitimate R&D Tax Advisors are clutching at straws – trying to secure commission from inflated 2020/21 R&D claims, without sufficient evidence.
🚩 Rogue operators hide behind percentage-based R&D Tax Credit claims
A second factor that could be enabling fraudulent R&D claims is a practice engrained into the R&D Tax Credits landscape – percentage-based advisory fees.
R&D Tax Advisors that charge a percentage of their clients’ R&D claims are commercially motivated to file the highest-value R and D Tax Credits, so that they can take home a larger portion of money. For this reason, percentage-based advisors sometimes inflate an R&D Tax Credit claim, and file them to HMRC in the hope that their reports will stick.
Of course, this doesn’t apply to every percentage-based R&D Tax Consultant. If that was the case, most of the market would be committing fraud!
But a great way to safeguard against inflated, potentially fraudulent R&D Claims – and avoid the substantial financial and legal penalties that they incur – is to use a Fixed Fee R&D Tax Credit Specialist.
🏆 How to safeguard your R & D claim with a trusted R&D Tax Advisor
Using a Fixed Fee R&D Tax Credit service has been recommended by HMRC to claimants looking to secure R&D Tax Relief but unsure which route to take.
At Claim Capital, we’ve only ever operated a fixed fee. And that doesn’t mean we sacrifice on service quality. We’re established as an experienced, reputable Fixed Fee R&D Tax Advisor.
Every R & D claim we submit is fully maximised – not for our own financial gain, but to keep our clients happy, and inject more money back into UK innovation.
Another motivation behind our Fixed Fee R&D Tax Credits model is the fact that it helps our clients fast-track their research and development, and the growth of their business.
As our clients spend more money on R&D activity over time, their claim size naturally grows. By sticking with our Fixed Fee R&D Tax Credit service, businesses can take home more R&D Tax Relief without racking up proportionally large percentage-based fees.
💡 Research and development should bring about R&D claims, not the other way round
An alarming approach sweeping the R&D Tax Credits market operates on the basis of bringing clients on without properly checking their eligibility for the scheme. And if the client fails to meet HMRC’s eligibility criteria, they’re more than happy to turn a blind eye and try to pluck R&D activity out of thin air.
In these cases, the contents of the Financial and Technical Reports are irrelevant – HMRC will throw out your entire R&D Tax Claim.
Always be cautious of R&D Tax Advisors that don’t assess the eligibility of your businesses in an initial call or meeting before asking you to sign any service agreements. This is a tell-tale sign that the service provider doesn’t have your best interest at heart.
There are plenty of R&D Tax Advisors out there that are highly reputable and trustworthy. So don’t panic - the solution to this problem isn’t to attempt your R&D claims in-house.
Research & Development Tax Relief is an extremely complex and niche area of taxation. In fact, it has less to do with tax, and more to do with the complex task of distinguishing and reporting qualifying R&D activity. That’s why there’s no substitute for using an experienced R&D Tax Specialist.
Hopefully you now have more of an insight into HMRC’s motivation behind pausing R&D Tax Credit payments, until they can regain the integrity of the scheme.
If you’re claiming R and D Tax Credits, let the outcome of this investigation inform your decisions when filing R & D claims in the future, and consider the points raised here to build a relationship with an R&D Tax Advisor you can trust.
All in all, we believe that abuse of R&D Tax Credit scheme can be mitigated by claimants being made aware of red flags to look out for when looking for a service provider. In addition, look out for indicators of a high-quality service, such as HMRC enquiry support at no extra cost, and positive customer feedback.
Free enquiry support, which we offer at Claim Capital, acts as insurance in the case of an unforeseen (and often, random) scrutiny. Advisors omitting information on enquiry support, or suggesting that this will come at a price, should be avoided at all costs.
Other than that, it’s up to HMRC to stamp-out the sources of fraudulent claims. And evidently, that’s what they’ve set out to do.