Low Quality R&D Tax Claims
HMRC are aware that a large number of low quality R&D tax credit claims are being submitted and have announced that they are recruiting 100 compliance staff this financial year to ensure claims are compliant and to undertake investigative work and risking. If you are confident that your R&D claims are being prepared properly then you have nothing to worry about!
R&D tax credits are a very important source of finance to a lot of companies especially in this difficult economic climate. They are a great way to encourage companies to undertake innovation. It is very important that companies are claiming where they possibly can.
However, it is also important claims are reasonable and well prepared which means that quality is a key factor. Claims should include robust and detailed supporting technical information. Over the last few years, it seems this has often become overlooked and concerns over the quality of claims has worryingly been raised by Government departments.
Other countries have been through a boom phase with R&D tax incentives. In recent years, Revenue authorities in Canada and the Republic of Ireland have clamped down on claims due to abuse and large amounts have been clawed back. From recent developments, could this be about to happen in the UK?
HMRC Recruiting 100 Staff To Audit R&D Tax Claims
In a letter dated 26 June 2020 to the Public Accounts Committee, HMRC indicated that “we are taking a number of steps to improve compliance for R&D claims. Additional funding has been allocated for 2020-21 for an additional 100 staff who will be deployed on compliance such as investigative work and risking”. We are sure HMRC will be able to generate large clawbacks including interest and penalties from low quality claims. They might even be able to go back 4 years and maybe even 6.
Government Authorities Are Aware R&D Tax Credits Are Being Abused
A report from the Public Accounts Committee dated 20 July 2020 included the following quotes – “National Audit Office found that the higher costs of the R&D relief for SMEs was in part due to abuse and poor-quality claims.” The report also states that “The main cause of lost tax on the R&D scheme for SMEs is from poor quality claims”.
How Does This Affect Your Claims?
Now is a good time for you to review your approach to R&D tax credits. Are you happy your current arrangements are robust and are not at risk from HMRC challenge? If you use a third party adviser, are you confident of the quality of their work and they will be there with you when HMRC comes calling? Do you have an HMRC enquiry and would value assistance? Note that HMRC have indicated that failure to submit technical information with a claim greatly increases the chance of an enquiry.
In terms of our approach to preparing claims, we have a specialist R&D tax team which includes 3 engineers, 2 scientists at PhD level and a software specialist. Our MD, Ian Farley, has been advising on R&D tax credits for 20 years – before starting the business in 2015, he worked in the corporation tax departments of PwC and BDO for more than 15 years (he was the R&D tax expert in the Belfast office for both firms).
Having this expertise enables us to have in-depth conversations with companies’ technical staff to really understand the R&D they are undertaking and to assess it against the qualifying conditions. We can identify more R&D activities and to maximise the benefits within reasonable levels and prepare high quality claims.
We offer competitive fees and only advise on R&D tax credits and the patent box. We do not provide any other accounting or tax service and we never will.
Please feel free to get in touch with Ian by email at ian@ianfarley.com or on 07752 386 484 if you would like to discuss further.
