Are you in control of your tax refund?
What would you say if your accountant or tax adviser suggested they take receipt of your tax refund and then forward it on to you? A very loud ‘No!’ probably! So, why is it acceptable for R&D providers to accept payment of tax credits on behalf of clients?
We are aware of a concerning practice of repayments from HMRC being directly mandated to the R&D adviser, with the consultant's fees coming out of the repayment before the balance is passed to the client. You might not be able to rescind such an assignment once it is in place. Some agents will even refuse to revoke the assignment, while others charge a fee for doing so.
HMRC received over 350 formal complaints, between April 2021 and March 2022, which explicitly referred to assignments, a figure which has been increasing annually. These complaints primarily relate to individuals not understanding that their repayment would be sent to the agent rather than directly to themselves, and where individuals do not recall signing an assignment.
What’s their excuse?
Why would an R&D provider have their client’s R&D credit paid into their own account, from which they take their fee?
It could be because a particular company represents a payment risk. In which case, it may be acceptable for the R&D provider to protect their own fees by taking priority over HMRC payments.
Similarly, there may be additional expenses to be defrayed by the R&D provider, reducing the admin requirement on the client company, and reducing distraction from their core business.
However, these are unusual circumstances and would represent a last resort for a trusted provider. R&D tax consultants should be able to provide their services and remain profitable without having to resort to such measures.
From the client’s perspective, assigning your R&D provider rights over your tax refund creates risks, including:
- your company losing control of its own tax affairs;
- having no control over when the payment hits your account;
- while the R&D consultant withholds payment to meet its own purposes and facilitate its own short term cashflow.
So, what should you do?
Make sure you know what you’re signing up for.
When choosing an R&D adviser, companies need to confirm what their standard contract entails – as not all providers employing this tactic communicate this upfront to prospective clients.
It’s also worth checking the provider’s relationship with HMRC, their role in brokering the relationship between your company and HMRC, and the process for settlement itself.
Should you decide to work with R&D tax advisers who require assignment of any cash payments you might receive, make sure that:
- they fully and clearly disclose the terms and conditions for forwarding the balance of cash credits back to your company.
- they confirm that funds paid by HMRC will be held in a ring-fenced account, and will not touch their own trading accounts – providing you with greater assurance, should your provider experience trading difficulties.
Demand complete transparency from your R&D tax provider.
ABGI is a consulting business working to accelerate our clients’ innovation activity by supporting the adoption of winning IP strategies, deploying world-class digitalisation solutions for design and manufacturing, as well as identifying and securing appropriate funding throughout the lifecycle of innovation projects.
Integrity is one of our core company values and means something to us. ABGI's contracts are designed to be clear and readable, as we want to be up-front about the expectations on both sides.
We would never take assignment over payments from HMRC, unless agreed in advance, between ourselves and our clients, and confirmed in writing.
To find out more about how ABGI can help your company release its innovation potential, please contact Sandy Findlay on 07807 739033 or email email@example.com