Bike sheds and other ridiculous R&D claims
I’ve written before on problems with poor standards in some parts of the R&D industry, but this particular article made my blood boil. It is likely to grab attention of builders and, no doubt, get clients emailing their accountant to check that they are in line for some of this £50m.
What is R&D?
There is definitely R&D in the construction industry and there may even be R&D that is directly related to the Covid pandemic. It’s just not as simple as the headline makes out.
According to the trade journal, R&D is “anything from converting office ground floors for bike storage in response to a modal transport shift to setting aside dedicated first-floor meeting space to limit visitor movement around buildings”.
It’s true that the meaning of ‘R&D’ for tax purposes is broader than many people realise, but it really is not that generous. Also it’s certainly not in simply converting parking garages into bike sheds!
Law and guidance
R&D for these purposes is defined in CTA 2010, S1138. The regulations referred to in subsections (3) and (4) are the Guidelines on the Meaning of Research and Development for Tax Purposes. There’s a lot of information in these guidelines but the key points are that for R&D to qualify for enhanced tax relief there needs to be:
- An attempt to achieve an advance (in knowledge or capability) in a field of science or technology
- Through the resolution of scientific or technological uncertainty
It might be the case that “reworking sites to keep them operational during the pandemic” and introducing “new safety measures and processes to ensure safe working” could involve some innovative thinking, but I seriously doubt that converting office ground floors for bike storage or setting aside dedicated meeting space are going to come anywhere close to being R&D.
I clearly don’t have all of the facts behind these examples, they may well have been oversimplified for the purposes of the article but it doesn’t change the fact that statements like these are, at best, misleading.
This bike shed claim isn’t the most extreme of the ridiculous claims that I’ve seen published. One of my favourites is:
“We worked with a call centre where the manager would record the telephone conversations between the customer and the agent, and then sit down with them afterwards and go over what they did well and badly – this counted as R&D.”
It really is no wonder that R&D tax advisers as a whole are getting criticised, both by others in the tax profession and by HMRC. Whilst I believe that this sort of approach to an important tax incentive is not reflective of the sector as a whole, poor practice must be called out.
Providing R&D tax claim services is increasingly seen by some as easy money, with new firms setting up almost daily. The reality is that many of these firms have little or no understanding of the legislation behind the UK’s R&D reliefs.
I wouldn’t be surprised if many haven’t even attempted to read the legislation, yet they profess to being ‘experts’ and/or ‘specialists’. They market their services with unsupportable and often meaningless claims such as:
- ‘approved methodology’ – approved by who, certainly not HMRC (as implied);
- ‘lowest enquiry rate in the industry’ – to be honest, I’m not aware that anyone (other than maybe, HMRC) keeps such records; and, of course
- ‘100% success rate’ – where to start with this classic!
The problem is that the examples quoted in these articles aren’t just fictitious scenarios, it is likely that these firms will actually have submitted claims based on those activities. That the examples are now being published suggests that those claims were ‘successful’.
Now here is the real nub of the problem, the firms making these claims probably think that their R&D claim has been ‘accepted’ or ‘approved’ by HMRC because it has been processed without question.
Unfortunately, they don’t seem to understand that HMRC operates self-assessment on a ‘process now, check later’ basis. Lack of resources at HMRC means that very many claims are ‘processed now’ without any real checks at that stage. Of course, in the future when HMRC does come calling, where will that adviser be?
Is regulation needed?
I have long believed that it is too late now to regulate the use of terms like ‘accountant’ and ‘tax adviser’, there are a lot of very good ‘accountants’ and ‘tax advisers’ who have not passed professional exams.
However, articles like the one in the trade journal, along with my first-hand experience of some claims that have been prepared by such firms really do make me question this position.
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I am an independent specialist adviser on the taxation of innovation, advising companies and other advisers on areas such as R&D tax relief, Patent Box and Creative Industry reliefs, as well as IP tax issues more generally.
Formerly a Tax Partner with KPMG LLP (UK), I left in 2011 to establish Aiglon Consulting.