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HMRC stonewalls the concerns of R&D advisors

14th Jul 2022
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HMRC keep their cards close to their chest at July RDCF meeting - no answers on FIS letters or stronger regulation

Man in suit refuses to answer questions

HMRC’s ‘Research & Development Communication Forum’ is a chance for HMRC to update advisors on changes, updates and news about the R&D scheme. It’s normally a pretty dry and sedate affair, with an audience of tax accountants and R&D specialists keen to understand HMRC’s latest thinking on a range of often arcane topics.

No answers to how FIS classify “irregular claims”

However, this time was different. The Fraud Investigation Service (FIS) has been sending strongly worded letters to SMEs across the country, informing them that their payable tax credits are being withheld due to suspicion of fraud. Payments of tax credits have slowed down across the board. The main question on many attendees’ minds was clearly ‘What on earth’s going on?’ and ‘Why are our clients being targeted and accused of fraud?’.

HMRC, however, was sticking closely to its script and giving little away. When asked about what constituted an ‘irregular’ claim or suspicious behaviour, the stock answer was:

“We do not comment on our operational intelligence since that can undermine our compliance activity.”

Any other question relating to the FIS letters seemed to get the answer:

“We have recently seen some concerning claims. To prevent abuse of the Research & Development relief and protect legitimate customers, we have conducted additional checks. Where claims have been made about which we have concerns, we have a duty to request more information about their validity.”

Anonymous finger-pointing prompts apologies to notorious claims companies 

There was even some scandal when an anonymous question was asked about why HMRC wasn’t doing more to shut down two specific (and fairly notorious) claims management companies. Names were named, prompting HMRC to apologise to the two companies concerned – and I suspect that at the next meeting, anonymity won’t be an option.

HMRC did at least commit to continuing their compliance efforts, stating that:

“[We are] committed to tackling error and fraud within the reliefs and continue to take significant steps to do so including increasing resource levels and launching and enhancing our risk assessment programme.”

While they were forthcoming about some of the changes being introduced, such as the requirement that companies will need to inform HMRC within 6 months of the end of their accounting period that they intend to make an R&D claim, they’re clearly holding their cards close to their chest about the level of fraud in the R&D scheme and how they’re going to deal with it.

HMRC have no plans to introduce regulation of the R&D consultancy market

And once again, the question was raised about whether the R&D consultancy market should be regulated, so that a more level playing field could be established between providers.

HMRC’s answer was that essentially ‘R&D is just another tax credit and if we had to regulate here, we’d have to do it everywhere else too – so, no’.

So, we appear to have a booming R&D consultancy market that’s riddled with unethical practices and non-compliant claims, and a tax authority with no desire to regulate (but a trigger-happy fraud investigation team). Hardly ideal, is it?

The only solution we can see is for ethical R&D providers to come together as a group, to support each other and commit to good standards. And this is why The R&D Community exists – to replace the regulatory vacuum with self-regulation. To provide training, support and a sense of community to accountants who want to help their clients make compliant and defensible R&D claims. To help those firms that value compliance, standards, ethics – and the training and support that underpin those values.

Through our online R&D academy, R&D Helpline, Claim Support service, customer forums and webinars, and in our lobbying of HMRC for positive change, we’re proud to be supporting those who want to see higher standards in R&D tax relief.