3 R&D tax relief horror stories that might keep you up at night
Over the years we've seen some truly terrible cases of third-party R&D advisors misleading clients about their claims. How does that impact you, when it's your client who's been misled?
The R&D tax relief market is notoriously patchy, with huge variability between providers in the quality of claims submitted. Some claims are excellent and prepared to a standard that would sail happily through an enquiry...while others sink soon after contact with HMRC, resulting in penalties and a black mark on the advisor’s reputation.
Whether or not you’re preparing claims yourself, as an accountant you’re likely to feel the impact in your own portfolio. To help you safeguard your clients, here are three examples of bad practice we’ve seen from R&D consultants and SMEs. We’ve changed some names, of course.
The made-up numbers
Rob was the MD of an engineering company in Scotland who engaged an R&D consultancy to help his company prepare its R&D claim. After a brief conversation about his company, he received notification from HMRC that his claim had been processed. Rob hadn’t provided any numbers, or much technical detail about his projects, so he was suspicious about the quality of his claim. Sure enough, the claim went to enquiry – leading to some very awkward questions for the consultant about how the claim had been prepared. Rob’s accountant had to get involved in sorting out the mess and support a very confused and concerned client.
The undermined accountant
Sally had a client who provided childcare services, who’d been contacted by R&D telesales and encouraged to make a claim. Sally explained the eligibility criteria and gave the client her opinion, which was that looking after children didn’t meet the requirements of the R&D scheme. A few months later, she noticed that a CT refund was showing on her system. The client had provided copies of their tax return to an R&D consultancy and signed off on an amendment to the return – ignoring Sally’s advice in favour of the consultant’s. Sally parted ways with her client not long after.
Not recognising grants and client payments
David engaged an R&D consultancy to prepare a claim for his textiles business, which had received various forms of grants and payments from clients. However, the R&D consultant didn’t ask about those – far less take them into account. The consultant ignored the rules around grants and subsidised work and claimed for all the work through the SME scheme instead of RDEC. Unsurprisingly, this inflated the claim’s value and the consultant’s fee in the process. This put David’s accountant in the very tricky position of having to explain how the inaccuracies, if submitted, could be seen as a fraudulent claim.
What can accountants do to protect their clients?
If any of these scenarios reflect your own experience or fears, then don’t worry. You probably already have many of the tools you need to protect your client from these unscrupulous consultants.
The most important thing is to be proactive with R&D. If you wait until your clients approach you about potential R&D claims, you'll be on the back foot. Like Sally, you'll find yourself having to argue against the beguiling pitches of R&D consultancies offering your clients big tax benefits.
If you’re proactive, you can also get in ahead of situations like David’s and Rob’s, because you already have the trust of the client and insight into their business. You’ll be able to prepare detailed, accurate claims that will stand up to HMRC’s review, and your clients won’t be tempted to look for alternative R&D advisors.
Educating your clients on R&D tax relief ensures they don’t fall foul of telesales and bad advice. Bringing your R&D service in-house then allows you to support clients who do qualify. At the same time, it shows to clients who aren’t eligible that you’re an authority on the subject. Earlier this week we wrote an article about Why accountants are choosing to bring R&D claims in-house, which makes great reading if you’re considering the move yourself.
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