Regulating advisers will reduce R&D tax relief abuse

As HMRC concludes consultation on the abuse of research & development tax relief at the end of August, ABGI-UK’s Scott Henderson calls for the regulation of advisers at a time when the UK needs to be globally competitive

27 August 2020

Scott Henderson (smallerMB)

Research & Development (R&D) tax relief has been a positive force for economic growth and employment by stimulating UK companies to invest in innovation. However, it has also been open to abuse, with HMRC suggesting it has identified and prevented over £300m fraudulent claim attempts through the SME R&D tax relief scheme alone.

This led HMRC to launch its consultation, ‘Preventing abuse of the R&D tax relief for SMEs’, in March, which has been extended until the end of August due to the Covid-19 lockdown.

Meanwhile, a further HMRC consultation, also closing at the end of August, is focused on raising standards in the tax advice market. The call for evidence is requesting views on a number of issues including the ‘characteristics of good and bad practice.’

These consultations are relevant to both SMEs, which currently claim for the relief or plan to do so in future, and advisers including those within the accountancy profession, whether they directly advise clients on these measures or commission specialist advisers like ABGI-UK to deliver this service. I would expect them to lead to new rules being implemented which support the government’s aim of raising R&D investment to 2.4% of gross domestic product by 2027, while weeding out fraudulent claims.

The aim of raising standards within the tax advice market can have a positive impact on HMRC’s other goal of reducing the level of abuse of R&D tax relief and we fully welcome both of these reviews.

No regulation

Since the introduction of R&D tax relief, several advisory firms have emerged across the UK to help businesses identify whether they qualify for relief and support them in preparing their claims. However, they currently operate without any form of regulation or governance.

This has opened the market to lower quality operators, some of which, in our experience, do not stand by their work when the claim goes into enquiry. It also increases the potential for illegitimate, inappropriate or simply incorrect claims being submitted.

While there are many reputable R&D tax relief advisers providing invaluable guidance for clients, there are some companies with low professional standards which not only threaten the reputation of our sector, but can also have a detrimental impact on the businesses they advise.

Understanding the technology and industry baseline to identify if and where innovation has taken place is an essential requirement within this market but there is currently no requirement for an R&D tax adviser to demonstrate they are capable of doing this.

Article originally published on Accountancy Daily

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