R&D Tax Credits – the importance of professional advice as HMRC cracks down on fraud and improper claims

R&D Tax credits are invaluable to many businesses, including SMEs, who can benefit from substantial tax credits or refunds for work which many firms regularly undertake as a matter of course.

In the 12 months to 30 June 2020, £5.3bn of R&D tax relief support was paid out by HMRC (the latest records available at the time of writing) an increase of 15% on the previous year.

This is great for the many businesses who invest in research and development, where further funds can be reinvested in their firm’s growth, whilst at the same time helping innovation in the UK. Unfortunately, this increase and focus on R&D Tax Relief has also given rise to the number of advisors providing bad or incorrect information, either through lack of knowledge and professionalism, or from sheer fraud, looking to cash in on the situation, instigating improper or even fraudulent claims on behalf of businesses.

R&D Tax fraud

This increase in improper claims has been very much the focus of HMRC, who are investigating more and more claims and cracking down on both businesses and their advisors. In fact, HMRC stated in 2019 that it has already identified (and prevented) fraudulent attempts which in total were worth more than £300m.

HMRC are taking a hard line with both businesses and their advisors who exaggerate or make misleading or fraudulent R&D claims. In November 2020, three men involved in a fraudulent claim for R&D tax relief involving an IT project were jailed for a total of 21 years at Birmingham Crown Court. This fraudulent claim came to light when HMRC requested additional supporting documents for a claim for SME R&D relief.

Caution also for inaccurate R&D Tax claims

It is not only outright cases of fraud that is attracting the attention of HMRC. Many businesses have fallen foul to lest scrupulous advisors either exaggerating claims or making claims on behalf of clients for activities that are typically not eligible for R&D Tax relief including R&D tax credits. These have included:

• A restaurant making a claim for new recipes
• New CRM systems where there was no advancement in science nor technology
• A routine installation of flooring by a floor fitting company

In some instances, these may have slipped through the net and been approved, especially during lockdown. However, as HMRC cross references and investigates existing and previous claims, it is possible HMRC will request a refund (with interest) and in many cases could even instigate proceedings for fraud.

Research & development tax advice from professionally accredited firms

Given the serious implications of falling foul of HMRC with bad advice; proper, professional advice is always the safest route forward. Advisors currently do not need to be regulated to provide R&D tax advice, or indeed more general tax advice (although the Government is rightly looking to change this). This had led to an increase in unregulated companies who do not follow Professional conduct in relation to taxation guidance.

Tax legislation is complex and fast changing. Advisors without the correct levels of experience and expertise can wrongly assess a business’s eligibility, or indeed not provide the required level of analysis and records to support a claim.

When a business engages with an agent, they should look for one which is governed by a professional body, such as the ICAEW (institute of Chartered Accountants in England and Wales) and whose staff are also suitable accredited.

How Alexander & Co assists with R&D Tax claims

R&D tax credits are an important tool to businesses. Accurate, trustworthy advice is key to unlocking invaluable R&D tax relief and businesses undertaking R&D activities should not be deterred from utilising this resource.

We have been successful in securing robust R&D tax claims for many businesses across a wide range of sectors.

Alexander & Co is regulated by the ICAEW and follows their professional conduct guidelines.

Unlike many companies, we take care of all the process regarding R&D tax claims. This includes carrying out detailed analysis and writing all the accompanying reports to support the claim. All we require from a business is typically an hour or two with the relevant personnel, typically the financial director (or equivalent) and a member of the project team. Having dealt with numerous claims across many sectors, including IT, manufacturing and food processing we are already familiar with may industry sectors processes.

With an expert team of qualified tax advisors, you can be sure of accurate advice that you can rely on. With a proven track record in securing R&D tax claims, we advise and assemble robust claims for clients.