Apparently exhorbitant R&D claim

Possible AML reporting issue?

Didn't find your answer?

I would be very grateful for the wisdom of this forum.

I have a builder client who was seduced by the claims of an R&D consultancy (and, as per, went into the process without letting me know first but did at least let me know after the event).

Now that I have received notification from HMRC of the size (!!!) of the repayment and have finally received paperwork from the client (which are calculations for two years but not including any technical justification report), I am even more concerned.

The claims are, ignoring some sundry items, for set percentages of the staffing / sub contract / material headings per the accounts and exactly the same percentages have been used over the two years.

Not that I am expert in R&D claims but the use of set percentages to make a claim appears dubious in its own right. When, added to that, the percentages claimed on a couple of headings are significantly in excess of 50%, my alarm bells are really ringing. What kind of jobbing builder has R&D in the first place and, even saying that he does, what kind of jobbing builder dedicates more than half his and his staff's time over a two year period to R&D and still makes a profit (or at least did before the R&D claim)?

On the other hand in mitigation, the R&D consultancy are linked to a firm of qualified accountants but I'm not sure that's going to be more than a fig leaf for me to rely upon.

I think I need to speak to the consultancy (subject to client approval of course) and ask them to explain the claim in more detail. But I would probably be more surprised were I to get an answer than were I not.

So, meat of the query:

* Do forum members think what I have is suspicion of a potential money laundering offence or merely speculation?

* But would asking the client for permission to approach the R&D consultancy count as tipping off?

* If I can't approach the consultancy or if I can but don't receive an answer, does that move those who would say speculation into suspicion?

* What else am I not thinking about?

Replies (26)

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By Tax999
08th Sep 2023 14:28

Had clients in similar positions, it will end up with a R&D Review especially just now as HMRC are really pounding the R&D returns. Personally, I would tell your client to be aware and not spend it until confirmed.

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RLI
By lionofludesch
08th Sep 2023 14:44

What does your client think ?

What R+D does he think he's done ? Or, put another way, why does he think that what he's done is R+D ? HMRC are asking questions and, if he doesn't have answers, the outcome is inevitable.

As far as your client is concerned, he's just a gullible fool, isn't he? As opposed to some criminal mastermind.

The R+D "experts", however, are a different kettle of fish. I take it he's paid these sharks?

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Replying to lionofludesch:
By Ruddles
08th Sep 2023 14:54

lionofludesch wrote:
I take it he's paid these sharks?

Normal process is for the R&D firm to receive the refund and pass it on to the client net of their fee. (I have seen cases where the claim resulted only in a reduction of the taxable profits rather than tax credit, but they insisted on delaying the claim until the original return had been filed and the tax paid in order to generate a refund. Sharks? I would not be so polite - I'm thinking of what one leaves behind after emptying the bath.)

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Replying to Ruddles:
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By bernard michael
09th Sep 2023 09:23

Ruddles wrote:

lionofludesch wrote: I take it he's paid these sharks?

Normal process is for the R&D firm to receive the refund and pass it on to the client net of their fee. (I have seen cases where the claim resulted only in a reduction of the taxable profits rather than tax credit, but they insisted on delaying the claim until the original return had been filed and the tax paid in order to generate a refund. Sharks? I would not be so polite - I'm thinking of what one leaves behind after emptying the bath.)


.......or before flushing the lavatory
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Replying to lionofludesch:
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By adam.arca
08th Sep 2023 15:56

Yes, already had the b0ll0ck1ng conversation with the client and now into damage limitation mode.

What does the client think? I asked the question and the answer was "I just did what they [R&D people] thought best." Jeez.

Yep, he's a gullible fool but (unless you know better, Lion, which would be great but unlikely in the circumstances) I don't think that's a get out of jail card from an AML report for yours truly.

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Replying to adam.arca:
RLI
By lionofludesch
08th Sep 2023 23:39

adam.arca wrote:

Yes, already had the b0ll0ck1ng conversation with the client and now into damage limitation mode.

What does the client think? I asked the question and the answer was "I just did what they [R&D people] thought best." Jeez.

Yep, he's a gullible fool but (unless you know better, Lion, which would be great but unlikely in the circumstances) I don't think that's a get out of jail card from an AML report for yours truly.

Bit harsh. I don't think you should be reported.

I'm not sure the client should either. He's simply relied on the advice of qualified professionals. Perfectly reasonable.

If you want to make a report, I'd suggest your target might be the authors of the claim.

Not that the NCA will take any notice.

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Replying to lionofludesch:
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By adam.arca
09th Sep 2023 08:52

*Chuckle*

Didn’t express myself very well there. A SAR on the R&D people was what I had in mind and I’ve been see-sawing on the client issue because they did take professional advice (very professional on the face of it) and I can see you’re on the same track as DW’s post below.

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By Roland195
08th Sep 2023 15:07

From what you have so far, I'd suggest that you have enough reasonable suspicion to require you to report. Fire away and as much notice anyone will take.

The chances are at this point, the claim won't be accepted by HMRC however even so, if you have advised the client you don't believe this to be genuine and they proceed anyway, you will require to disengage.

Asking questions of the R & D firm is not tipping off but I don't think any good will come of it.

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Replying to Roland195:
RLI
By lionofludesch
08th Sep 2023 15:15

Roland195 wrote:

The chances are at this point, the claim won't be accepted by HMRC however even so, if you have advised the client you don't believe this to be genuine and they proceed anyway, you will require to disengage.

My understanding is that we're beyond asking the client to bale out. The claim's in and now he has to defend it. As long as he's not dishonest in that process, there's no need to disengage, though the likely outcome, of course, is that he'll need to repay all or most of the repayment the company received.

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Replying to lionofludesch:
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By adam.arca
08th Sep 2023 15:58

Yep, that's right, Lion. Claim's in, been processed and repayment received (minus 20% cut for R&D people). It's a lot of money which the client has been advised not to touch but, let's be honest, that's not going to happen.

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Replying to Roland195:
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By adam.arca
08th Sep 2023 16:01

Roland195 wrote:

From what you have so far, I'd suggest that you have enough reasonable suspicion to require you to report. Fire away and as much notice anyone will take.

Thank you, that's my feeling too.

Roland195 wrote:

Asking questions of the R & D firm is not tipping off but I don't think any good will come of it.

No, I don't see me getting a response but I feel like it's an iteration which has to be worked through to demonstrate that all bases have been covered.

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Replying to Justin Bryant:
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By adam.arca
09th Sep 2023 09:11

Thank you, Justin.

Fig leaf and bolting the stable door both come to mind. Plus ca change...

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By DonDan
08th Sep 2023 16:38

We had a client with a similar type of claim. After we discussed it with them in detail the claim was withdrawn before it was processed. HMRC still issued a penalty for making the claim in the first place. So it may end up costing your client a penalty as well as not getting any refund back.

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Replying to DonDan:
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By adam.arca
09th Sep 2023 08:58

Ouch! Damned if you do withdraw and sword of Damocles if you don’t. That’s not going to help the next conversation.

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By Matrix
08th Sep 2023 17:22

I thought a SAR was for something that HMRC do not know about. They know about this and can look into it if they wish.

There is probably a high chance but not as high a chance if filed under the new online R&D service. Since the company has to tick a box if they are using a specialist and not their usual agent.

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Replying to Matrix:
RLI
By lionofludesch
08th Sep 2023 23:44

Matrix wrote:

I thought a SAR was for something that HMRC do not know about. They know about this and can look into it if they wish.

There is probably a high chance but not as high a chance if filed under the new online R&D service. Since the company has to tick a box if they are using a specialist and not their usual agent.

Aye, but you don't make an SAR to HMRC. You make it to the NCA

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By Derrenly
08th Sep 2023 17:38

Unlikely to be money laundering (I am guessing) and more a brazen grab at 'free cash' facilitated by an R&D advisor who has put thoughts into your client's head..
And lack of technical justification is the first red flag.

If HMRC pick up on this (there is an increased chance of being challenged, though still not 100%; and we are assuming there isn't any qualifying R&D activity - there may well be and businesses in the construction industry do indeed make claims), your client will have to defend the claim (or not, and take the hit).

You client may have to do this alone if there's no agreement with the R&D advisor, or seek out another R&D advisor (at a cost). Penalties can range from bad to really bad.

It is worth relaying your/these concerns to your client to prepare them in case an enquiry is started by HMRC.

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Replying to Derrenly:
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By adam.arca
09th Sep 2023 09:00

Many thanks, very helpful, more grist for the mill of the next conversation about this.

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David Winch
By David Winch
08th Sep 2023 19:09

May I just pick up on the "gullible fool" point in relation to reporting a suspicion.
Considering the client - if what he has done is what he believes to be correct (and he has paid for expert advice which said it was) then he has not been dishonest. If he has not been dishonest he has not commited criminal tax fraud. Based on his understanding he neither knows nor suspects that there are any proceeds of crime. So there is no money laundering report to be made in relation to the client. He gets the benefit of what one respondent on here referred to as the "gullible fool" exception.
If, having heard your views, he comes to the conclusion that he has claimed a repayment to which he is not genuinely entitled, then it WOULD be dishonest of him not to take steps (such as instructing you to contact HMRC) to correct the position. If he now fails to do that then he is committing criminal tax fraud and you will then need to report him.
Of course the client may be subject to civil tax penalties for negligently submitting an excessive claim - but that's not a criminal matter (so does not trigger a need to report).
Considering the R&D experts - you have to form an opinion as to whether you think they have been dishonest (meaning they did something they knew they should not be doing) in order to generate fees for themselves. If you think they have been dishonest then you need to report them (not the client).
You are not going to tell anybody that you are making a Suspicious Activity Report - I very much doubt you are going to even hint at the fact you are considering making one. So I don't see 'tipping off' as a problem area for you. There is no reason why you should not make proper accountancy/tax enquiries of the R&D experts.
David

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Replying to davidwinch:
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By adam.arca
09th Sep 2023 08:44

That’s brilliant, thank you so much, David, for encapsulating the whole issue for me in one easily comprehensible post.

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By PChapman
12th Sep 2023 10:34

Without repeating the SAR, not SAR, debate I would simply ask the client to provide a full copy of the returns, and submissions made to and by the R&D Expert including the technical report.

I would simply state that R&D is a hot topic with HMRC so expect it to be challenged!
And as the defacto tax advisor (assuming you have a 64-8) as agent I would like a copy so that I can properly account fo the changes in CT and any deferments etc. Also need to properly account for the credit and the fees.

R&D advisors are like builders - good ones are worth their weight in gold - bad ones are to be avoided like the plague!

off to have a similar converation with one of my clients now...

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Donald MacKenzie
By Donald MacKenzie
12th Sep 2023 12:14

R&D is an area where, for very little work, dodgy R&D "specialists " take 20% of the figure they think they can get away with.
It's beyond time when HMRC should be rejecting many many claims from people who could not research a new way to drive home and could not develop an new idea if it was presented to them on a plate.
Builders and other trades rarely develop new techniques. They are doing just what their clients instruct.
HMRC should throw the book at the R&D sharks.

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By GDavidson
13th Sep 2023 14:37

Do HMRC not bear any culpability in all this? They were accepting these claims for years with no serious enquiry but now they have woken up to what everyone else knew all along. Tough luck?

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By petestar1969
13th Sep 2023 15:28

Why not just email BBC Watchdog about the R&D "Specialist"?

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Pile of Stones
By Beach Accountancy
13th Sep 2023 20:23

Yet again any accountant could have told HMRC in 5 minutes what would happen. (c/f furlough / bounce back loans).

Yet our taxes have to go up to pay for their negligence...

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