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Will HMRC’s plans for regulation disadvantage R&D tax relief advisors?

10th Jun 2024
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While some of HMRC's plans might help some areas of tax advice, R&D tax relief may lose some of its most knowledgeable and experienced advisors.

Regulations for R&D tax relief

HMRC’s recent consultation looked at raising standards in the tax advisory market, with a special focus on unaffiliated tax advisors.

They proposed three approaches to raising standards:

  • Approach 1 – Mandatory professional body membership
  • Approach 2 – Joint HMRC-Industry enforcement
  • Approach 3 – Regulation of advisors by a new government body

In the consultation, HMRC sought input on each of these approaches and included some more specific questions about people’s experiences working in the tax advisory market. Approach 3 is the only one that doesn’t include direct involvement from the professional bodies in regulating the tax advice market.

From those professional bodies that have published a response to the consultation, they unanimously favour approach 1. 

Professional bodies seek regulation of unaffiliated advisors

The major professional bodies publish their full responses on their websites, but this recent AccountingWeb article conveys their position well. In short, they view unaffiliated advisors as the greatest threat to standards in the tax advisory market. To some it seems that it’s less an issue of the average standard of service, and more that some have standards and others simply don’t.

It's unsurprising that the professional bodies prefer approach 1. It’s certainly in the interest of their existing members, and its implementation would see their numbers surge. Realistically, it’s also the easiest to implement. It’s also true that some of the most problematic advisors are unaffiliated– the worst of them lie, cheat, and swindle unsuspecting taxpayers, apparently without fear of repercussion.

That isn’t to say the professional bodies are all smiling and nodding along with HMRC, quite the opposite. They express concerns about how each of these approaches would work in practice. For example – what would be done to actually police those that refuse to join a professional body? Does HMRC have the resources to ensure these individuals don’t continue providing tax advice ‘underground’? 

Their responses also highlight that some unaffiliated advisors that only work within specific areas of tax could be forced out of their jobs. But, with their views on those advisors being broadly negative, it doesn’t seem like a very pressing concern.

While explicit mentions are scarce, most of the responses reference R&D tax relief as one of those specific areas that needs special attention due to the large numbers of unaffiliated advisors and highly variable levels of competence and service. Although the professional bodies seem to think cutting down those numbers would be a positive, we’re concerned about good R&D advisors leaving the market exactly when their skills and expertise are needed the most.

How does the HMRC consultation impact R&D tax relief?

Approach 1 might help other areas of tax, but it may not be as effective when applied to R&D tax relief. It’s true that the area has a large number of unaffiliated tax advisors, but it’s also a qualitatively different area of tax. Many highly knowledgeable and professional R&D advisors don’t belong to a professional body because it’s simply not an appropriate or relevant option for them.

Many people become R&D advisors because they have previously worked in an R&D-heavy industry and have specialist knowledge of technology. This leaves them well-equipped to help businesses in those industries with their claims.

These advisors can be extremely competent within R&D tax relief, but often have little to no experience with other areas of tax – it’s not relevant to their work or desired by their clients. 

It’s not clear who would benefit from them becoming qualified in the wider field of tax or accountancy – except perhaps the professional bodies. If forced to join one to continue practicing, it’s likely that most would join the professional body with the shortest qualification path – or just leave the profession altogether. 

So, while it might be effective for other areas of tax, it’s tough to imagine approach 1 working as well for R&D tax relief. As an organisation dedicated to raising standards within R&D tax relief, we were eager to provide HMRC with our thoughts on each of these approaches. It’s our view that tax payers will be better served if all those providing advice on R&D tax relief are held to a specific and relevant standard, rather than forced to work towards largely irrelevant qualifications. You can read more about this on our website.