The latest statistics showing the value of R&D tax relief were published by HMRC in October 2021. And as we noted at the time the total value of R&D tax relief for 2019-2020 is now projected to be nearly £7.5bn – a big number.
Consultation of R&D tax reliefs
As this number grows year on year then of course it attracts government scrutiny to ensure that this public money is being spent wisely and in line with stated policy objectives. To this end, the government launched a wide-ranging consultation of R&D tax reliefs which ran from March to June 2021 and stated, “The government has an ambitious target to raise total investment in research and development to 2.4% of UK GDP by 2027. R&D tax reliefs have a key role in incentivising this investment by reducing the costs of innovation. It is therefore important to ensure that the reliefs remain up-to-date, competitive and well-targeted.”
You can read our response to that consultation here.
HMRC increase their inspection rates
Tax investigations have not been the priority for HMRC due to Covid and resources have been used to help support the various government initiatives such as CBILS. But the tide is now turning and HMRC have new targets to meet when it comes to income from tax investigations. We’re moving from a process-light period of serious generosity to an environment where inspectors will be targeting the bad eggs and likely will drive very hard indeed. With an additional 100 inspectors now at HMRC, the signal is very clear that no stone will be left unturned and this, without question, includes the R&D tax scheme.
The R&D tax credit schemes follow BEIS Guidance which is long, technical and subjective. Any non-specialist or opportunist “R&D tax credit advisors”, who have jumped on the bandwagon without the relevant skills, knowledge or expertise will soon find out that any substandard claims they’ve made for clients will fall under the full scrutiny of HMRC.
Who should be concerned about increasing HMRC enquiry rates?
The sorts of things that should start to ring alarm bells about your R&D tax credit provider:
They assert that an R&D tax claim can be done in 15 minutes or for a ridiculously low fixed fee
A platform starts with the question “What is your R&D?” – you are already missing most of the value an advisor can bring.
How will they respond if there is an HMRC enquiry and would they charge for that service?
What experience do they have at handling HMRC enquiries?
Why it matters if you are an accountant
Do you know who is offering R&D tax advice to your clients or making claims on their behalf? If it isn’t you, or a respected R&D partner, then your clients are putting themselves at risk. If one of your valued clients finds themselves under an HMRC enquiry they will certainly come to you as a trusted advisor for help, but by then it will be too late. Dealing with this issue could be time-consuming and resource-intensive, and could leave the client relationship in tatters, with the potential for reputational damage to your firm.
Our online service for accounting partners, Elevation, puts you in control of R&D claims for your clients as trained and regulated professionals. Elevation ensures smaller businesses get access to R&D tax relief, managed by you who understands your clients’ activity and the intent of HMRC tax incentives.
Why it matters if you are an investor
As an investor, or board member, you may feel that an R&D claim is purely a niche tax matter, that you haven’t got much to add to that decision. Commercially you might consider the choice of a low cost provider to be a smart move. However, this should be considered a matter of governance, in the same way as choosing the auditor, legal or any other professional advisor. Not least for the potential risk, it poses in the light of this increased HMRC inspection rate which potentially would impact cash flow for the portfolio and enterprise value.
Welcoming improved standards in the industry
We have a proven track record with HMRC and a well-established claim methodology. If any of our clients face an HMRC enquiry we will defend it on their behalf at no extra charge. We currently have an enquiry rate of less than 0.2% compared to the industry wide average rate of 14%.
Basically, we have nothing to fear and actually welcome the industry being held to the highest standards to ensure the integrity of the scheme. Poor compliance shouldn’t be allowed to sneak through, it’s in nobody’s interests.