Dubious R&D tax relief claim - opinions please

Dubious R&D tax relief claim

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I  have been instructed by a valued client to submit amended CT600 tax returns to include what I can only describe as dubious R&D tax relief claims prepared by a firm of  cold calling R&D consultants who charge a percentage of the resulting tax repayments. 

I have had no part in preparing the R&D claim and my only role has been to draw up the amended tax computations and prepare & submit the amended tax returns, as instructed, to facilitate the R&D claims as they were given to me. In sending these amended documents to my client for signing prior to submission I heavily caveated everything to distance myself from any opinion on the accuracy or otherwise of the R&D claims, but I remain uneasy about the whole thing. 

My client has described the matter as ' relatively incredulous when it was first raised as a possibility' and they admit to having 'paired down the claim initially suggested by the consultants to figures we are more comfortable with on the basis that similar business are happily making similar claims'.

I would be interested to hear from other accountants who may have experienced a similar situation and to know what the accounting profession's general opinion is on this matter and where suspicous acitivity reports sit amongst the mushrooming industry of R&D consultants.

 

 

  

 

Replies (15)

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Psycho
By Wilson Philips
03rd Oct 2019 12:22

I don’t get too hung up about these so long as I retain control of the submission process (the odd R&D firm has tried to submit the revised returns themselves). We make sure that the computations contain a note to the effect that the claim has been prepared by a 3rd party and that it has not been subjected to any scrutiny by us. If that increases the chances of an enquiry, so be it.

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By Justin Bryant
03rd Oct 2019 12:35

It infuriates me that HMRC bang on and on about egregious EBT loan charge tax avoiders yet waives through so many of all these highly dodgy R&D claims without batting an eyelid (and so encourages this highly dubious if not outright illegal practice of grossly inflated R&D claims to continue).

BTW, see Keth Gordon's latest excellent loan charge comments here:

https://www.taxation.co.uk/Articles/gordon-0001

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Lone Wolf
By Lone_Wolf
03rd Oct 2019 12:49

I agree with Justin here. It beggars belief that so many of these claims go through unchallenged.

A local "expert" has submitted claims for some of our clients (one a bloody clothes shop!). They actually amended the CT600 themselves, so we see nothing.

Of course, if you call the CT helpline and ask for the submission, along with any PDF attachments, then they are usually quite obliging. The reports this shower prepare are utter dung. Dubious doesn't cover it, some of the claims in the report are downright lies. Again, agreeing with Justin (I hope this doesn't become a habit) I'd say the claims are probably illegal and constitute tax evasion.

I wonder if HMRC would be open to taking me on as a consultant. I'll inquire into these claims for them for a % of the tax take. I could make a fortune and retire after a year no problem.

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Replying to Lone_Wolf:
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By Maslins
03rd Oct 2019 13:20

Lone_Wolf wrote:

The reports this shower prepare are utter dung. Dubious doesn't cover it, some of the claims in the report are downright lies. Again, agreeing with Justin (I hope this doesn't become a habit) I'd say the claims are probably illegal and constitute tax evasion.


If you feel that way, shouldn't you be filing an SAR?
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Replying to Lone_Wolf:
Psycho
By Wilson Philips
03rd Oct 2019 13:24

Illegal or unlawful? The problem with R&D is the high level of subjectivity involved ("Is it R&D?", "Is the worker spending 60% or is it 80% of his time on R&D?", etc etc).

Nevertheless, I agree with you (and Justin, up to the point where he decides to stick his nose up KG's backside again and references an issue that has no relevance to the topic in hand) that if the claims contain outright fabrications then they ought to be rejected in their entirety and the advisers hauled over the coals.

Out of interest, though, one of our clients that just so happens to be a clothing retailer/hirer submitted a claim prepared by one of the more reputable firms. That claim was scrutinised by HMRC, leading to a minor adjustment, but it's a clear illustation that R&D doesn't necessarily involve white coats and test tubes.

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Replying to Wilson Philips:
Lone Wolf
By Lone_Wolf
03rd Oct 2019 13:40

Wilson Philips wrote:

Out of interest, though, one of our clients that just so happens to be a clothing retailer/hirer submitted a claim prepared by one of the more reputable firms. That claim was scrutinised by HMRC, leading to a minor adjustment, but it's a clear illustation that R&D doesn't necessarily involve white coats and test tubes.


True... but using the computer to keep track of your stock levels, as opposed to your old paper system, probably doesn't quite cut the mustard.
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Replying to Lone_Wolf:
Psycho
By Wilson Philips
03rd Oct 2019 13:49

If that's all that's involved, I'd agree. But this client's case involved development of a sophisticated stock level monitoring system, integrated with its online sales and hire facility. The consultants were obviously satisfied, as were HMRC, that there was sufficient technological uncertainty/difficulty etc. Not that it should make any difference in principle, but the claim was relatively modest and nothing like some of the extravagant claims we have seen elsewhere. It's worth pointing out that the same firm concluded that there was no claim in another case where the client had already been advised by one of the high-commission "fly-by-nighters" that there was a claim running into the several £100,000s. Far too late now, but some form of regulation of said firms ought to have been put in place.

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Replying to Lone_Wolf:
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By L Haldane
03rd Oct 2019 13:50

Am I being naive in thinking that where a business has genuinely invested in R&D there should be some evidence of this on the bottom line for the year in question ??

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By Roland195
03rd Oct 2019 13:23

A recent course suggested HMRC are aware of this & are getting ready to deal with it but as usual, it's the stable door after the horse is long gone - the companies in question have had the cash & no doubt will be liquidated should HMRC come knocking now.

When you compare how difficult it is to get a CIS refund & the byzantine levels of bureaucracy involved with how easy it is to effect a significant R & D claim it shows what a farce it all is.

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By Adam12345
03rd Oct 2019 15:00

Ask to see the claim information produced by the R&D firm?

It will be like any other tax relief. It gets abused, it gets taken away, those that used it genuinely, lose out.

The majority of the abuse is by 'specialist' R&D firms that prey on small businesses. Could be restricted to R&D for large companies only, which would end the abuse to a certain extent.

That said, I believe the R&D relief is funded (at least partly) by the EU so little incentive for HMRC to prevent the abuse (until brexit of course).

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By whitevanman
03rd Oct 2019 19:21

I am sorry to introduce a small note of cynicism into the conversation ( a soupcon for remainers like adam12345).
I am surprised that a question such as this arises and even more surprised at the responses ( though for the record I do agree most of the sentiments). It shows a lack of understanding of the economic doctrine of "troughism".
In 2000 that very nice Chancellor (the articulate, Scottish one!) introduced R&D relief because he felt it would benefit UK plc by keeping genuine R&D activity here.
The tests were based around "blue sky" thinking. Underlying it was an intention to give away £800m.
In reality, few of the claims actually included true "blue sky" thinking (as found by HMRC in the vast majority of enquiries they opened).
This did not find favour with said Chancellor who wanted to give away said sum. Answer? HMRC set up a special unit to "handle" all R&D claims. With only a small staff, only a very small number of claims could be scrutinised and then only the ones evidencing the worst abuse or most obvious errors.
Successive Chancellors have increased the spend to around £1.5bn (per annum). This is so despite the fact there is not one piece of evidence that any significant R&D activity has resulted. Indeed there is a marked resistance to obtaining any such evidence.
Along with the increase in spending has come significant changes in what is accepted as qualifying activity (and who makes that decision).
The result has been a marked increase in the number of what many might view as spurious claims.
So long as the annual cost doesn't exceed the budgeted figure, there seems to have been little concern (from HMRC or government) but the increasing number / scale of the "doubtful" claims has triggered a (little bit of a ) re-think. HMRC is now, apparently, considering taking more enquiries.
The point is that we are obviously at or close to the point where there are too many snouts in the trough. It is very similar to the loan charge that was introduced (at least in part) due to the number of "swillsuckers".
In this respect, adam12345 was partly correct, though I doubt the relief will be entirely withdrawn and certainly not for the "large" claimants.
If I can also digress slightly, I have assumed adam12345 to be a remainer because of his belief that the relief is partly funded by the EU. It would be very surprising indeed if the EU was giving money to a tax relief in UK designed to keep lucrative activity here. It is more likely viewed as a "state aid" by the EU which means HMG must justify it to our neighbours (and have their approval). Sounds like one of those rumours spread (largely by remainers) about the dire consequences of leaving the club. Presumably if we leave, all R&D related jobs will leave the UK!
I suppose my point in all of this is that, whilst I share the sentiments about spurious claims, I wouldn't expect HMRC to leap up and do anything about it at this time.

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Replying to whitevanman:
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By Adam12345
03rd Oct 2019 22:07

HMRC are already acting, it is certainly on their radar.

https://assets.publishing.service.gov.uk/government/uploads/system/uploa...

I’ll let you carry on guessing my political opinions.

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Replying to Adam12345:
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By whitevanman
03rd Oct 2019 22:27

The document in the link points to the substantial increase in numbers of claims and the costs, since 2012. It also comments on the abuses discovered. The cap, which only comes in from April 2020, is an attempt to address certain schemes that are to engineer relief. It is not aimed at the sort of matter discussed which is far more simple - spurious claims for doubtful R&D activity.
As I said, don't expect to see any serious attack on that or tightening of the rules anytime soon.

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By tonyaustin
07th Oct 2019 11:41

Yes Minister, of course your policy of increasing R&D spending by UK companies is proving to be a success. Just look at how much tax relief has been given away, which reflects the increase in R&D spending in the UK. By the way, as I understand it, the relief is State Aid and therefore the amount is controlled by the EU.

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Replying to tonyaustin:
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By whitevanman
07th Oct 2019 14:07

Oh. That's harsh. I seem to remember a consultation 5 or 6 years ago where the question was asked "do you think it would be a good idea for us to increase the amount we give you" (or words to that effect). Guess how many respondents said "No"? Clearly shows what a good idea the relief is!

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