A leading Chartered Accountant and business advisor has called for tougher rules governing the provision of Research & Development (R&D) tax relief consultancy to provide more adequate protection for UK companies. Introduced in 2000, R&D tax credits are designed to drive competitiveness in British business by incentivising companies to invest in innovation.
While the Government has recently bolstered its support towards R&D, announcing a further £2.3bn investment for it in last November’s Autumn Budget, it has also put forward extra resources to tackle tax avoidance, evasion and non-compliance. This tightening of scrutiny means that companies now face a much greater risk of being subjected to more in depth HMRC investigation and potentially significant tax geared penalties if, on enquiry, it is found that they have been party to the submission of erroneous or unverified R&D tax relief claims.
Since the introduction of R&D tax credits, several dedicated R&D firms have emerged across the UK offering to prepare companies’ claims for relief on certain categories of innovation expenditure. Unlike other business advisory professionals including accountants, lawyers and pensions specialists, some R&D tax firms have not been subject to any form of regulation or governance.
Mark Pryce, a Glasgow-based partner with accountants and business advisors Campbell Dallas, says “R&D tax credits are a great measure, intended to drive innovation and enhance the economy. A rise in unmerited claims leading to large scale adjustments being required by HMRC across companies’ tax returns in the UK could force the Government to close down the scheme.“ Mark says he is coming across more situations where overly enthusiastic salespeople and cold-callers can over exaggerate what should be considered as true R&D within the spirit of the scheme; with some making incorrect suggestions on what might qualify to encourage potential clients to sign up to their commission based fee engagements.
“It is easy enough to set up as a R&D tax relief ’expert’ without much governance or compliance. We need to see more protection being offered to companies to ensure they will be dealing with experienced R&D tax credits consultancy firms who are well equipped with technical and professional competence as well as high ethical standards in this complex area of tax. To protect companies and ensure the scheme will be maintained in the longer term, HMRC could start by giving accreditation to those firms adhering to self-regulation, for example via a risk scoring system where the professional standards and experience of an advisor would be factored into R&D tax credit claims being submitted. This approach would also fit with HMRC’s aim to work more closely together with agents and advisors to raise the bar,” he says.
“R&D tax is a complex area where claimant companies need to adopt, often with the help of a specialist third party consultant, a scientific and academic approach to track how they are developing true innovation and raising standards within their industry. Most companies that legitimately qualify will have taken that approach or will work with an advisor who can help put processes in place before making a claim. Working with firms who are regulated or who self-regulate will reap the most benefits for businesses looking to claim. At Campbell Dallas we are monitored by ICAS and ICAEW. As a result, our accountants and advisors must participate in extensive training and must continue to participate in ongoing professional development to comply with institute regulations. Our team are also highly experienced when it comes to handling claims and getting the right advice in place for clients. As a result, we understand the boundaries of the scheme and the process in depth.”
The call for greater protection for companies is also coming from within the R&D tax credit advisory sector. Edinburgh-based Jumpstart, which advises companies throughout the UK, is calling for a benchmark to be set to ensure all consultants operate with high standards.
Scott Henderson, Jumpstart’s Managing Director, says: “There are many highly knowledgeable R&D advisors in the market providing invaluable guidance for clients and helping them recoup significant tax breaks for their investment in innovation. There are, however, also a number of mushroom companies operating in our sector with low professional standards. Not only do they threaten the reputation of our sector but they can also have a detrimental impact on the businesses they advise. Making an erroneous claim can lead to a company being subjected to a review of their tax records from the previous six years which can be extended if HMRC inspectors believe deliberately misleading transactions have been submitted. Those which breach the rules not only face having an existing claim fully retracted but also put at risk their eligibility on any future claims.”
Last year Leeds-based Brewology, a specialist design and manufacturing supplier to the brewing industry, was placed in administration following issues with HMRC over disputed R&D tax credits and a demand for a trading bond of over £200k. While the company was saved from administration last March when it was relaunched as PD Brew, it provides an example of how a mishandled claim for R&D tax relief can backfire on a business.
While welcoming the prospect of HMRC taking the lead role as a R&D tax advisor regulator, Jumpstart’s Scott Henderson feels the Government department would unlikely be in a positon to put forward the required resources. His view is that self-regulation, with the creation of a voluntary quality standards society, would be a more viable first step. “This would require credible and reputable R&D tax relief advisory firms to come together to agree a set of standards and develop a certification scheme, ideally modelled along the lines of ISO accreditation,” he says. “Businesses could then be reassured on the quality of advice by working with an accredited firm or individual.”
“We will continue to push for a workable form of regulation as we believe it’s in the long term interest of firms in our sector that invest in quality people and proper management systems. Removing rogue elements will ultimately protect companies who rely on external expertise in applying for R&D tax credits.”
For more information contact Mark Pryce:
0141 886 6644
The information in this article should not be regarded as financial advice. This is based on our understanding in June 2018. Laws and tax rules may change in the future.