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Fraudsters jailed for £29.5m R&D tax relief claim

Three men were convicted for a fraudulent £29.5m R&D tax relief claim on IT development work that their company didnt undertake. 

4th Dec 2020
Community Assistant AccountingWEB
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Fraudsters headshots

Matthew Sutherland, Mohammed Zeb Zaheer and Mohammed Iqbal Khan were jailed for a total of 21 years following an investigation prompted by a falsified bank statement submitted in January 2016.

Sutherland used his company, Convergica (Clinical Information Systems) Ltd, to claim the £29.5m tax relief against a purported £137m spend on developing an IT healthcare system for two countries in the Middle East.

Kath Doyle, deputy director of HMRC’s fraud investigation service, said: “These men tried to extract an astronomical sum of money by claiming tax relief from a scheme designed to help legitimate companies do work that seeks to make advances in science and technology.

“This wasn’t research and development, it was out and out fraud. HMRC will continue to create a level playing field for law abiding businesses by rooting out the minority who seek to abuse these schemes, as this result clearly shows.”

Convergica claimed to have outsourced the programming work for the IT system to Mediatronix Ltd, a company controlled by Khan.

However, this payment was not made and the claim for R&D was fraudulent. The £29.5m claim was not paid out by HMRC.

The three men were found guilty at Birmingham Crown Court on 26 February after an 11-week trial, during which they pleaded not guilty to conspiracy to cheat the public revenue.

Client claims

R&D tax relief has become increasingly prominent within the UK’s corporation tax system over the past 20 years and many businesses have been able to invest more in development work as a result of the incentive.

However, many AccountingWEB members have suggested that R&D claims have been getting out of hand for some time.

“I believe the system is being widely abused and claims are being made where there is no great justification to do so,” said andrewjlane, who complained about clients being contacted by unscrupulous R&D consultants encouraging them to make claims.

“This is exacerbated by HMRC not having the skills or resources to enquire and thus the automated system is by and large just churning out money,” the AccountingWEB member said.

In reply, sculptureofman remembered once looking through a capital allowances claim that had beem prepared by a “specialist” adviser; it included a £250 claim for the supply and installation of a microwave.

“I Googled the model number of said microwave, and it was a £19.99 one from Asda,” they said. “So according to the CA firm, it cost my then client £230.01 for someone to plug a microwave in.”

Brads.Kings commented: “If only HMRC would do their job. I have done one R&D claim. That client pushed me to be ultra aggressive with big numbers; HMRC made no enquiries.”

AccountingWEB readers were almost unanimous in suggesting that HMRC needed to investigate people more thoroughly upon receiving claims.

“HMRC need good old fashioned regular compliance reviews,” said ireallyshouldknowthisbut. More active interventions would quickly isolate rogue firms and allow the tax department to act, rather than discovering  bogus claims down the line when the culprit was no longer trading.

When R&D reliefs were introduced 20 years ago, HMRC officers enquired into a large proportion and found that almost all failed to satisfy the statutory criteria, whitevanman commented. “This was, however, a flagship policy and the chancellor had told everyone that he was giving away something like £800m,” they said.

After accountants complained about the ineffectiveness of the relief, HMRC officers stopped looking at them, encouraging a proliferation of spurious claims.

A former HMRC employee joined the debate, admitting that these issues had been obvious during their time with them: “However, there was not always the will or resource to address them. HMRC did take on an additional 20 (or so) HO’s to review R&D claims last year so hopefully, the situation will improve.”

Replies (4)

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By Richard Grant
06th Dec 2020 12:07

Am I the only one to rush off and look up their accounts for Y/E's 2015 and 2016? Good reading (for 2-3 seconds). I wonder what the accountants PI insurers have to say?

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Replying to Richard Grant:
By ljpjones
07th Dec 2020 18:54

I also spent 2-3 seconds looking which is longer than they took to prepare them

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By Justin Bryant
07th Dec 2020 10:51

The only surprise is is that they didn't get away with it. Perhaps if they had been less greedy they would have been in the 99.999% of R&D claim fraudsters that do.

As I have said before, compare & contrast HMRC's approach there to loan charge taxpayers.

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By andrewjlane
07th Dec 2020 19:17

Thank you for quoting my original any answers post. Interesting to note that, on the left of this page, there is a link to Tax Cloud suggesting that “accountants can also benefit from r&d tax credits”. If the general consensus is that the r&d scheme is being exploited, should AW be carrying ads that potentially encourage its own users to take advantage where it is difficult to justify such action...

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