R&D cowboys target care homesby
HMRC has warned care and nursing homes businesses not to fall for agents trying to persuade them to submit R&D claims that are probably illegitimate.
In the nudge letters, HMRC advises the recipient that it is highly unusual for businesses within their sector to qualify for R&D relief due to the nature of their work.
It reminds them of the definition of R&D for tax purposes and asks them to review all R&D claims to ensure they are eligible. The aim of the letters is to reduce fraudulent claims and save both HMRC and the claimants time and money.
Too good to be true
R&D credits are notoriously generous in the UK as the government seeks to incentivise scientific and technological advancement. But where there's a favourable tax policy you can bet there are a handful of unscrupulous agents lurking in the shadows seeking opportunities to exploit it.
Such outfits will often cold call businesses offering to save them thousands, perhaps tens or even hundreds of thousands, by submitting claims for R&D relief on a 'no win, no fee' basis.
What the self-proclaimed 'R&D specialist' agent will fail to explain to the eager care home owner - woefully under-funded and struggling to keep afloat - is that HMRC will usually pay a credit before confirming its legitimacy.
The cowboy agent generally receives the R&D credit direct from HMRC and transfers the funds on to the client, after deducting a fee (usually 15-25% according to HMRC's letter). If and when HMRC investigates the claim and finds it to be bogus, it falls on the care home to refund the full amount of the credit, including the agent's fee and often interest and penalties on top.
By then many of these cowboy agents will have disappeared into the sunset and folded their companies, leaving the claimants to fend for themselves against HMRC and pick up the fees.
To avoid falling into this trap, the nudge letter recommends a series of questions that businesses should ask themselves if approached by an agent offering to process an R&D claim on their behalf:
- Is the agent qualified to advise you?
- Has your usual financial adviser ever given you advice on R&D tax relief?
- Before you were contacted, did you know you were undertaking R&D?
- Do you understand what you’re claiming for, and do you know what may happen if the claim is later found to be incorrect?
- Do you have evidence to support your claim? Does any information you’ve received about R&D sound too good to be true?
It also refers them to guidance on GOV.UK, inviting them to check whether the relevant activities genuinely meet the definition of R&D.
This is the latest in a string of 'one-to-many' letters sent by HMRC in an attempt to crack down on R&D fraud, a campaign which began last year after HMRC estimated the level of error and fraud relating to R&D reliefs for 2021/22 at £469m.
AccountingWEB reported last month that this campaign, while well-intentioned and beneficial on the whole, has had the unwanted side effect of discouraging legitimate claims, where taxpayers have neither the funds nor the energy to fight HMRC.
In one example given by an AccountingWEB commenter, a valid claim was withdrawn as the client was loss-making and the R&D credit claimed would have been carried forward "so it wasn't economic to fight HMRC".
However in the case of the nursing and care homes nudge letters it does seem that HMRC's goal of protecting the taxpayer from scam artists is well-positioned. To qualify as R&D for tax purposes, activities undertaken must seek to achieve scientific or technological advances within a field.
The claims that HMRC says it is seeing (and rejecting) from nursing and care homes tend to comprise normal day-to-day activities, observations and improvements within the individual homes, eg, constructing sensory gardens or designing patients' meal or care plans.
Beware benevolent callers
In an underfunded sector, it is no great surprise that some may fall for the charms of a benevolent caller purporting to be an R&D expert and be fooled into believing they are entitled to a very welcome and much-needed extra pot of cash.
Where the business has no history of, or intention to undertake R&D, considering some of the questions above might bring the focus back to reality before it's too late.
Unfortunately, when something seems too good to be true – and particularly when that something is free money from the tax man – it usually is.
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Consulting Tax Editor for AccountingWEB.
I have spent the last 10 years teaching the accountants of the future, mainly ICAEW advanced level corporate reporting. I also cover tax news and write and edit tax updates for other publishers including PTP Limited.