R&D tax relief claims have been under increasing scrutiny in recent months as HMRC has looked to clamp down on irregular claims. Just before the summer recess, draft legislation was also published setting out new requirements for businesses claiming under the regime.
HMRC has become increasingly aware of inconsistences between R&D tax claims and have recently recruited 100 new compliance officers to the R&D tax relief team. Further, the draft legislation, which is due to come in with effect from 1 April 2023, is also aimed at tackling abuse and will require companies to:
- make any future claims for R&D reliefs or tax credits digitally;
- include a breakdown of costs for each of the qualifying categories along with a description of the R&D activities;
- inform HMRC of the intention to make a claim within six months of the end of the period to which the claim relates, using a digital service (although this will not be required if the company has made an R&D claim in one of the three preceding periods); and
- claims will need to be endorsed by a named senior officer of the company and will also need to include details of any agent that has advised the company in respect of the claim.
As a firm we have seen a number of questionable claims, with limited information gathering, and often without appropriate support to back the claims made.
As a member of the professional accountancy and taxation bodies, we have responsibilities to adhere to, including the Professional Conduct in Relation to Taxation (PCRT). Professional practices to which PCRT applies are required to satisfy themselves that entries on clients’ tax returns are sustainable and are not incorrect or misleading; failure to do so can result in the relevant professional institute taking disciplinary action against the tax adviser concerned. Other advisers may not fall within the ambit of PCRT, although they are supposed to adhere to similar requirements set out by HMRC. By requesting
agent details, HMRC should be able to quickly identify any advisers that are consistently making inaccurate claims.
Coupled with the proposed changes to the regime, HMRC are also ramping up their procedures and carrying out more checks at the point the claim is made. For most genuine claims, this may just delay processing slightly, but for others it could lead to enquiries and potentially having to pay some or all of the tax saving back to HMRC.
These additional checks have also worryingly led to HMRC sending out a number of letters to taxpayers stating that “HMRC believe that you may have fraudulently claimed money to which you were not entitled”. Although in some cases there may be inaccuracies in claims, the implication of fraud is very strong and it can be quite scary for a company to receive a letter making suggestions of fraud and possible criminal investigations.
If you are considering preparing your own R&D claim or engaging a third party to prepare on behalf of the company, you should carefully consider whether you believe the company has genuinely undertaken projects aimed at achieving an advance in science or technology and whether the quantum of the claim seems too good to be true!