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R&D Claims Getting Out Of Hand?

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I seem to be in constant dialogue with clients who have been contacted by R&D consultants suggesting that they can make R&D claims.

I think we all know that the process of making a claim is easy - amend the return and a week later, money is in the account. We could all do that but the validity of the claim is not questioned at that point and I believe this is what those pushing these schemes are relying on, especially as they are taking a cut of the refund. 

I believe the system is being widely abused and claims are being made where there is no great justification to do so. This is exacerbated by HMRC not having the skills or resouces to enquire and thus the automated system is by and large just churning out money. It's therefore a difficult conversation to have with a client who has been promised refunds by the "expert" whilst often selling their services on the basis that "we are specialists in this field which is why your acocuntant hasn't done it".

I have seen some frankly ludicrous claims that no way qualify but weaknesses in the system are allowing them through. It can only be a matter of time before HMRC catch on but in the meantime, it continues to be a frustration to me.

Today's R&D claims are yesterdays Capital Allowance claims and EBT schemes...or am I just being cynical?

Replies (25)

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By Brads.Kings
17th Sep 2020 11:12

When I looked into the R&D specialists (Companies House, website, Linkedin etc), it seemed the specialists were ex-recruitment consultants and they used companies that were closed down by the time the enquiries would be concluded.

I asked my builder client whether he thought he was really carrying out SRA work and told him the rewards (net of fees) and risks (HMRC digging into the status of his subbies etc, latest ConDoc), I expressed no opinion, but would charge full rates for any enquiry.

Clients hear of tax refunds without risk; explain the risks and they are no so keen. If only HMRC would do their job. I have done one R&D claim that client pushed me to be ultra aggressive with big numbers; HMRC made no enquiries.

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Replying to Brads.Kings:
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By MuayThai
18th Sep 2020 09:37

A friend of mine is an officer in the army. The army bods have a firm doing all of their tax returns. He gets asked questions such as 'how far is it from army base to home?' 'How many times per week do you travel home?' And various other leading questions. He says he knows it's dodgy, but HMRC would never investigate army guys would they? Can you imagine the bad press?

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Replying to MuayThai:
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By John Isabel
18th Sep 2020 10:23

Rift, by chance?

They used to come up on my Facebook feed regularly as a sponsored advert until I blocked them. Out of curiosity I went through their online tool once using test criteria which absolutely wasn't eligible for as refund and it said I was due one.

I believe they also do R&D, CAs, etc. It's a family business and the lady who start it has seemingly won lost of 'entrepreneurship' awards but their website/profile doesn't refer to any of the owners having a formal accountancy background. They may have, and just not dislose it

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Replying to John Isabel:
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By MuayThai
18th Sep 2020 15:18

I just checked with him, yes it's rift. I'm curious why has no one at the revenue looked into their shady practices?

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By sculptureofman
17th Sep 2020 12:34

I remember looking through a capital allowances claim a client of mine had done by a 'specialist' CA firm. There was a claim for £250 for the supply and installation of a microwave.

I googled the model number of said microwave, and it was a £19.99 one from Asda. So according to this CA firm, it cost my then client £230.01 for someone to plug a microwave in.

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Replying to sculptureofman:
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By Justin Bryant
17th Sep 2020 13:16

It's been mentioned numerous times here that most R&D claims by such outfits are fraudulent/spurious, yet there seems no incentive for HMRC to stop them (on the contrary, as R&D relief is encouraged, the higher the claims, the better the Government looks, so if anything there is a disincentive in checking these are proper/valid).

I would happily work for HMRC for free and block all these dodgy R&D claims for a 1% commission, as I would make a fortune very easily.

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Replying to Justin Bryant:
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By Bobbo
17th Sep 2020 13:31

Justin Bryant wrote:

I would happily work for HMRC for free and block all these dodgy R&D claims for a 1% commission, as I would make a fortune very easily.

1% commission isn't working for free...

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Replying to Bobbo:
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By Justin Bryant
18th Sep 2020 09:16

Well, there would be no incremental cost to HMRC (and they would be vastly in the money) is my obvious point. A bit like how this charity thing works but a much better offer by me: https://www.asa.org.uk/news/collect-clothes-not-complaints-charity-colle...

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By Crouchy
17th Sep 2020 14:58

we pass clients onto a specialist firm for R & D and it works well, we identify the clients we think have a claim and pass them on, tidy commission for us and happy clients.

the real problem is the cold callers, we've had many clients contacted by this type of R & D firm, promissing the earth and not doing a lot, thankfully no clients have gone ahead with a claim this way......yet

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By SXGuy
17th Sep 2020 15:09

This isn't always specifically to do with R and D either is it. There are plenty of so called specialists who claim people are missing out on tax refunds and process massively overstated claims, then disappear before any enquires arise.

New client few years back was lured by one who claimed he was owed thousands, processed it, took their cut then low and behold, hmrc caught up and client had to pay it all back.

Rather than bang on about non qualified accountants needing a professional body, it would be great if we could find a way to regulate these shady "specialists"

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By jon_griffey
17th Sep 2020 15:34

There was an editorial in Taxation 8 September 2020 discussing the problems with R&D cowboys which I think we can all relate to. It is well worth a read. There are also some sobering anecdotes from ICAS. Apparently restaurants are being targeted. It seems that cooking a steak to the diner's liking, or removing the anchovies from a pizza constitutes R&D and massive claims are getting through without HMRC batting an eyelid.

https://www.icas.com/__data/assets/pdf_file/0007/555523/20200827-ICAS-re...

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Replying to jon_griffey:
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By Justin Bryant
18th Sep 2020 09:16

Yes; but HMRC aren't blameless here and much of the fault can be put at their door for not policing it properly. Why for instance do HMRC put vastly more energy & resources into persecuting law abiding taxpayers who did legitimate EBT tax planning yet let these fraudulent R&D claims proliferate?

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Replying to jon_griffey:
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By MuayThai
18th Sep 2020 09:21

Cooking steaks qualifying for R&D? Jesus. I hope R&D incentives will be gone in a few years, and all those geography graduates will be out of a job

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Ivor Windybottom
By Ivor Windybottom
17th Sep 2020 16:37

Anybody think that tighter regulation of tax advisors will help this problem?

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Replying to Ivor Windybottom:
Psycho
By Wilson Philips
17th Sep 2020 16:42

I'm sure that someone does. I don't - at least not significantly.

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Replying to Ivor Windybottom:
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By justsotax
17th Sep 2020 16:45

depends....do you think tax advisers are the problem?

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Replying to Ivor Windybottom:
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By SXGuy
17th Sep 2020 18:54

Yes yes we're all at it once again, never a qualified accountant, always the ones without letters, because a qualified must be someone of high standards and morals.

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Slim
By Slim
17th Sep 2020 20:27

I thought this was well on HMRCs radar

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@enanen
By enanen
18th Sep 2020 10:11

Sick of the call handlers phoning clients. I now send them the HMRC link where it reads 'Science and Technology' That usually does it.

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By mhkay
18th Sep 2020 10:53

I run a small software business and our R&D claims are entirely valid (and very useful!), but I'm amazed that they go without questioning -- we would have difficulty finding evidence to back them up. (What I mean is, I'm honestly using my best estimates, but I feel that (a) if I stretched the claim, no-one would notice, and (b) if the claim were challenged, I would have trouble proving my honesty).

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By mhkay
18th Sep 2020 10:58

It's also rather an odd way to incentivise R&D. By reducing the tax you pay on your profits, people who are already making a profit get some of their R&D costs back, whereas people ploughing money into R&D that isn't yet achieving a return get nothing. So they're not actually encouraging risky innovation, they're just rewarding successful innovation.

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By Ian Bee
18th Sep 2020 11:06

I looked into R&D claims for companies I was working for about 10-15 years ago. To make the claim properly is quite difficult as by definition, you need to understand the scientific research behind it. Not always easy to find the operational people who will explain in layman's terms what is involved. I spoke to a consultant at one of the Big 4 firms and they encountered exactly the same problem.

Collecting the figures and allocating costs etc should not be onerous but finding what R&D is being done and how it fits the definition in the Tax acts is difficult.

Then we find all sorts of spurious claims being made which HMRC don't bother to challenge.

I despair.

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By Bruce Roberts
18th Sep 2020 12:57

I heard a story about R&D claims which may be apocryphal but it does ring true.

In the early days HMRC enforced the legislation with an iron rod and rejected a huge quantities of claims. HM Government became very irritated with HMRC for making their R&D incentives seem more hassle than they were worth and hampering genuine R&D work. HMG had words with HMRC. As HMG did not change the legislation but wanted more claims to succeed HMRC responded by setting up a special task force to police claims. The task force consisted of just a handful of people and therefore the number of claims scutinised was miniscule. Everybody was happy. So that is (alegedly) how we arrived at the current situation where you can submit a claim for pretty well anything and it will be accepted and a refund issued!

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Replying to BSSRoberts:
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By Justin Bryant
23rd Sep 2020 13:32

That sounds about right to me (by which I mean it's not in the least bit apocryphal) and coincidentally this view is more or less mirrored in this "pizza toppings" editorial from Tax Journal yesterday: https://www.taxjournal.com/articles/questionable-r-d-claims

[Edit] And here also from Taxation Magazine yesterday (love the photo): https://www.taxation.co.uk/articles/problems-in-the-r-d-advice-market

Yes HMRC do nothing about this and instead ruthlessly pursue law abiding EBT taxpayers. Clearly HMRC do not treat all taxes and all taxpayers equally.

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By North East Accountant
18th Sep 2020 14:58

Looks like HMRC condoned fraud.....

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