During the Spring Budget 2021, the government announced a review into R&D tax credit relief with the aim of ensuring that the UK remains a competitive location for cutting edge research and that the reliefs continue to be fit for purpose. In addition, a consultation was released to gain valuable insight from stakeholders.

Abuse and compliance in R&D tax credit industry

There were numerous topics discussed in the consultation, one of which was centered around abuse and compliance. There has been growing concerns that abuse and ‘boundary-pushing’ involving R&D tax credit relief has grown in recent years. This concern has been mirrored by comments made in the consultation responses, and in meetings with stakeholders.

One area highlighted in the consultation report was the recent emergence of unregulated R&D advisors, unregulated meaning not being a part of any professional body, undertaking sophisticated cold calling campaigns in a bid to contact SMEs who have no prior experience of submitting an R&D tax credit claim. They are using sophisticated sales tactics, luring companies in on the promise of making vast amounts of money. Eligibility criteria and regulation are not featured highly on the advisor’s agenda, with many willing to submit dubious claims to make a quick buck.

Lisa James, Business Development and Marketing Manager at LimestoneGrey, a regulated R&D tax credit consultancy, commented:

‘It is so unfortunate that the industry is being tarnished by unregulated advisors, many of whom do not have a background in tax, but it is even more unfortunate that companies are being taken advantage of in this way and as such putting themselves at serious risk.

Marketing campaigns are vital for companies who want to reach out to new customers, so we need to be careful to not assume all R&D consultancies undertaking marketing activities are unethical.

If you are contacted by a R&D tax advisor, my advice would be to:

• Check the advisor’s credentials – R&D tax credits is a highly complex area of tax law, one of which is not offered as standard by mainstream accountants as it is not a compliance service. Due to its technical nature, it is so important that your advisor has all the necessary qualifications needed, allowing them to undertake the work to the highest level of accuracy and detail.
• Investigate the service level available – A full-service consultancy will take you through the entire R&D tax credit journey, from initial consultation, through to submission and beyond. This is not the case with all suppliers, with some forcing you to rely heavily on your own accountant after the claim has been prepared. These advisors often are not registered with HMRC and are therefore unable to submit the claims on your behalf.
• Learn from others – The supplier’s website is a good place to look for testimonials providing information on the experiences of other clients.
• Get a second opinion – Most consultancies will provide a free no obligation assessment of your company’s situation and will give advice on whether it is worth pursuing a claim. I would recommend getting a second opinion, you have nothing to lose.
• Look out for unusual behavior – When engaging with an R&D tax credit advisor, I would advise to proceed with caution if any of the following situations occur:
  • The advisor alludes to the claim value in the initial conversation, as it is impossible to comment on a figure without in-depth analysis
  • An advisor’s fee seems too high or too low
  • The advisor ties you in with a long-fixed term contract

Read our recent article for more advice on choosing the right supplier for your business.

HMRC’s next steps to improving compliance

HMRC has made investments to tackle this issue, already allocating additional resources to the R&D tax relief compliance team and with the promise of further resources and the creation of a new team to focus on abuse. However, this alone will not address the issue.

The government plans to enforce a variety of changes designed to deal with the serious issue of abuse, whilst all the while, ensuring as much as possible, these changes will not impact compliant businesses.

Further information on these changes can be found in our recent article: Government confirms strategy on the modernization of R&D tax credits.