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Has HMRC’s approach to compliance changed under the Merged R&D Scheme?

30th Apr 2024
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The Merged R&D Scheme has brought lots of changes to how businesses can claim R&D tax relief, but has HMRC's approach to compliance changed as well?

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Over the past few years, HMRC has added or increased regulatory requirements for those working in R&D tax relief. This change came in response to increased abuse of the scheme, but the outcome so far has been a mixed bag.

Many advisors have found these measures too strict, while others welcomed them as a necessary step to raise standards in the industry. Regardless of your view on their implementation, you still need to comply with these new rules in order to run an effective and compliant R&D advisory service.

What are the rules and regulations for R&D advisors?

HMRC considers anyone that prepares R&D claims to be providing tax advice, even if you’re not an accountant. You don’t need to be working on a tax return, and simply providing advice about qualifying projects or costs means that you need to follow these rules. 

First and foremost, as an “accountancy service provider”, you’ll need to be registered for Anti Money Laundering Supervision. If you are an accountant, you’re likely already registered with your professional body. If you’re not a member of any of the PCRT bodies, you can register directly with HMRC.

While anyone providing tax advice needs to comply with these, you have additional obligations if you want to submit corporation tax returns or Additional Information Forms. You’ll need to register as an agent with HMRC and set up an Agent Services Account, and/or your Online Agent Authorisation.

Related: 

These measures have been in place for a little while, but with the introduction of the new Merged R&D Scheme they bear fresh relevance for advisors. HMRC is bound to keep a watchful eye over claims submitted under the new scheme, so you’ll want to make sure you do what you can to stay in their good books.

Our free course An Advisor’s Essential Guide to the Merged Scheme outlines the essential steps, as well as covering important changes to areas like subcontracting, qualifying costs, and overseas expenditure.

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HMRC is trying to improve compliance in R&D Tax Relief

These regulations are only a small part of HMRC’s overall approach to improving compliance in the R&D scheme. They’ve come at it from various angles over the past few years, and we’ve seen changes across the board.

An early sign of change came back in the autumn of 2022 when the chancellor cut the rates of relief, following a Government consultation and some bad press about error and fraud within R&D tax relief. 

Shortly after, claimants and R&D advisors were taken aback by the unprecedented increase in rejected claims and compliance checks. At the same time, HMRC identified an organised criminal scheme to fraudulently claim R&D tax relief, and the outcome of that meant many genuine claimants received letters from the Fraud Investigation Service , as their claims fit some of the same characteristics.

As time moved on, HMRC then introduced the Additional Information Form in August 2023, and the new requirement to notify them in advance  of any intended claims starting after 1 April 2023. 

All these changes, and the new rules of the Merged Scheme, are intended to make it easier for HMRC to police the scheme, and in some cases, to make it easier for claimants and advisors to prepare accurate claims. Overall, there are reassuring signs that things in the industry might be trending in a positive direction, but there’s still a long road ahead.

Most recently, HMRC has been consulting about proposals for regulating tax advisors. These proposals pose some interesting questions through the lens of R&D tax relief. As an industry that has had its issues with bad actors, would it benefit from broader regulations for those advising claimants?

While the Merged Scheme wasn’t directly introduced as a compliance measure, it coincides with the other moves HMRC has made towards that end. There are also aspects of the new Scheme that bring forward some of the protections within the old SME and RDEC Schemes, like the PAYE and NIC Cap.  Our previous article in this series has more details: What is the Merged Scheme’s PAYE and NIC Cap?