A mistaken belief exists that R&D tax relief is both too time-consuming and complex, which has led to many accountants steering away from it. In turn, firms are missing out on this possible service line, while the relief is also largely underclaimed by genuine SMEs. Equally, the unregulated and at times, immoral activity of dedicated R&D tax relief consultancies, has led to HMRC becoming stricter on misrepresented and imprecise claims – leading to businesses potentially facing fines and experiencing financial investigations.
With HMRC beginning to impose a more audited and vigorous process, how can accountants build confidence to offer clients the guidance they desperately require? Accountancy firms have both the ears and the trust of their SME clients, and therefore, these firms need to feel empowered. Mike Dean, Managing Director, WhisperClaims argues that to do this, it must include having access to support in navigating the complexity of clients’ eligibility for HMRC’s R&D Tax Relief scheme; as well as help in removing the manual and extensive processes associated with completing an effective claim.
Existing Challenges
Driven by a drive in SME R&D claims, in recent years, the UK R&D Tax Claims market has seen 15 – 20% compound annual growth. Yet, the approximate total of tax credit claims is only 90,000 – demonstrating an endemic lack of awareness of the HMRC scheme across the UK’s 5.58 million SMEs. At the same time, HMRC is concerned that the total value of claims being made out delivers the level of R&D activity occurring in the UK – indicating that many claims are invalid.
One of the big challenges is that R&D tax relief legislation is not accurate. HMRC’s ‘let the market solve the problem’ approach isn’t working. The guidance is long-winded and can be hard to apply to real-world situations that don’t fit within the examples provided. Also, there is no accreditation needed to provide R&D tax relief advice, or any requirement for training.
Rather, the market has become dominated by ‘R&D tax relief consultants’ who trade on uncertainty. These consultancies have systematically undermined accountants’ confidence in their ability to offer this valuable support to clients by intensifying the complexity of the process – which can have damaging and serious implications.
Red Flags
Too many SMEs report that R&D tax relief claims are made on their behalf without assessment, review or approval – despite the business owner being responsible for the information provided to be accurate. If the claim raises a red flag with HMRC, there are no repercussions on the consultancy, as the burden falls directly on the SME. However, with no understanding or record of how the consultancy put together the claim, an SME is at a loss. The end result will often be the prompt repayment of any relief gained, a fine, or if HMRC suspects fraud, a full financial investigation.
Investigations across all areas – such as R&D tax relief – will surge, especially with HMRC investing over £160 million over the next five years to increase compliance capacity. Accountants will be affected by this clampdown – many of whom will have clients that have fallen prey to the hard sell of R&D consultants. With accountants regarded as the prime source of trusted financial advice by SME business owners, any HMRC investigation or fine will directly impact that existing relationship.
Taking Back Control
Guidance from HMRC has stated that: “a competent professional within a business is best placed to judge eligibility.” This highlights the preference for accredited and skilled accountancy professionals to take charge. Additionally, as of April 2023, HMRC will be demanding that every filed claim is supported by a written report, which is signed off both by the end client, and the organisation submitting it. This creates the perfect opportunity for accountants to regain control and deliver a credible end-to-end client service, which includes R&D tax relief.
Any accountant practice can become an expert in R&D tax claims with the right support. With a variety of support services and software tools available, these resources can enable clients to put together a claim quickly and easily by providing the necessary structure and support.
Furthermore, specialist providers are offering accountants access to dedicated R&D tax relief expertise and focused social media groups where they can share their experiences with peers. Some also offer a risk review to double-check the claim and point out any anomalies that may raise a red flag, as well as a portfolio review service, which provides accountants with a list of priority clients who are most likely to benefit from R&D tax relief.
Conclusion
Specifically, within R&D tax relief, HMRC is tightening up compliance. Next year, the changes coming into play are likely to only be the start of more robust processes. Likewise, the acceleration in HMRC compliance activity will result in claims being more rigorously investigated, increasing the likelihood of badly handled claims being denied. However, accountants will only come across this issue when a worried client requests support in the face of an HMRC investigation.
It is now key that firms embrace tax relief R&D as part of their fundamental service offerings. With the possibility that this will soon become a de facto part of the comprehensive tax advice model, accountants who embrace this area of client support will build confidence, enhance their reputation, and get a step ahead of the competition, while also creating a new revenue stream.
