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HMRC Aims to Reduce Abuse of the R&D Schemes

Tue, 08 Feb 2022 08:57:03 GMT

HMRC Fires the First Shot in a New Campaign to Clamp Down on Fraudulant Abuse of the R&D Relief Schemes

Due to a growing concern that the R&D tax relief scheme was being abused, either intentionally or unintentionally, HMRC conducted a review and consultation in 2020/21 that covered both R&D tax relief schemes - the Research and Development Expenditure Credit (RDEC) and the small and medium enterprises (SME) R&D relief.

HMRC have hired an additional 100 new caseworkers to allow more claims to be reviewed. Additionally, some of these individuals are technical specialists, able to understand the nuances of complicated technical detail. Naturally, these additional caseworkers will have contributed to the increases seen in the number of enquiries raised by HMRC recently.

From April 2023, HMRC intend to implement the following changes, which have been lifted directly from the HMR C R&D Tax Reliefs Report :

All claims to the R&D reliefs – either for a deduction or a tax credit – will in future have to be made digitally (except from those companies exempt from the requirement to deliver a Company Tax Return online).
These digital claims will in future require more detail – for example, on what expenditure the claim covers, the nature of the advance sought, the field of science or technology, the uncertainties overcome.
Each claim will need to be endorsed by a named senior officer of the company.
Companies will need to inform HMRC, in advance, that they plan to make a claim.
Claims will need to include details of any agent who has advised the company on compiling the claim.

Having to submit claims digitally will make things quicker and easier for HMRC, resulting in more claims being reviewed and potentially more enquiries launched.

Having to include much more detailed information regarding the activities and costs that have been included should make those compiling the claim take a moment to really consider whether or not something should be included. This requirement should deter individuals from attempting to include items that they know are not eligible.

Insisting that a senior officer of the company endorse the claim makes them responsible for ensuring that a claim is compliant and perhaps question the individual/company providing the claim service a little closer than they might have done otherwise. Additionally, should HMRC launch an enquiry and the claim is found to be not compliant, then the individual that endorsed the claim will be liable, just as like they are for other areas of their professional responsibilities to the company.

Companies having to inform HMRC in advance that they intend to make a claim might present some challenges, but until HMRC reveal more detail, we will just have to wait and see.

Probably the most uncomfortable for those individuals/companies that prepare claims and sail a little too close to the wind, is the requirement for the claim to include the details of the agent that advised the company in compiling the claim. Again, a good requirement in that it ensures that individuals take responsibility and ultimately held accountable should HMRC launch an enquiry that finds the claim to be bogus or the rules have been applied incorrectly.

The bottom line is that HMRC are keen to eradicate as many fraudulent claims as possible, many of which are probably as a result of unscrupulous “advisors” encouraging companies to make a claim based on the promise of a large payday. Hopefully, these new requirements will help to clean up the R&D Tax Relief Claim industry by discouraging those out to make a quick buck or two, which ultimately can only be to the betterment of the industry as a whole.

Download a copy of the HM RC R&D Tax Reliefs Report HERE .

Time for a New Quote?

websitebuilder-hub@lcn.com — Tue, 08 Feb 2022 08:12:26 GMT

Do you get a new car insurance quote every year? Why not get a new R&D quote?

Time for a new R&D Tax Credit Quote?

So, your company is already claiming R&D Tax Credits, but you are coming to the end of the contract with your current R&D Tax Credits provider and you ask yourself, “What next?”

When you come to the end of your car insurance term, your current provider usually sends you a renewal quote a few weeks in advance of the actual termination date, hoping that you will renew with them. It’s a well known fact that many millions of people just allow the auto-renewal process to renew their car insurance without bothering to shop around. As a result, 6.7 million drivers were caught by a “Loyalty Tax” and paid an additional £1.9 billion for the privilege (Aug 2020, GoCompare). An estimated 21% of car insurance policies auto‑renewed in 2020 and all of those people probably paid over the odds.

When it comes to renewing your R&D Tax Credits contract, you have two choices open to you; do nothing and remain with your current provider or shop around for a cheaper alternative. However, cheaper may not necessarily mean better service. What are you actually paying for when you pay a R&D Tax Credit company to prepare your claim?

Ultimately, you are paying for a good quality, robust claim that is defensible should HMRC come knocking because they want to investigate your claim.

There are various options when it comes to selecting a R&D Tax Credit company to prepare your claims; the “one man band”, your accountant, the SME claim providers or one of the large claim providers. All of these options came with differing prices and levels of service.

The “one man band” is probably going to be the cheapest option (10%-12% of claim value) as they will have virtually no overheads. The quality of the service that they provide will vary greatly, so it is wrong to tar them all with the same brush, but some will be better than others. However, as a single individual offering the service, how can they guarantee a good quality, defensible and robust claim if they do not perform any type of independent review of each and every claim? Additionally, would the “one man band” stand at your side and assist you in the defence of a claim should HMRC come knocking?

Your accountant may very well provide a R&D Tax Credit claims service, but unfortunately, not all accountants are fully versed in all the HMRC rules and regulations involved with R&D Tax Credit claims. Consequently, they often fail to maximise the value of the claim. Again, the accountants may not conduct an independent review of the claim before submission, it depends if there is someone else in the practice versed enough in R&D Tax Credits to be able to review a claim. Should HMRC come knocking on your door because they want to investigate your claim, in all probability your accountant will stand by your side and assist in the investigation. However, they might not have sufficient knowledge and experience to assist in that defence, which might be why you find yourself in an investigation with HMRC in the first place.

Price wise, the R&D Tax Credit SMEs usually sit somewhere between the “one man bands”/accountants and the large claim providers. They are able to do this because they have relatively few overheads. Generally, the SME providers know all the rules and regulations so they are able to maximise the value of your claim. In addition, depending upon the company, they will conduct an independent review of the claim before submission and if they are any good, then they will be by your side should HMRC decide to investigate your claim.

The large R&D Tax Credit claim providers are good at what they do, that’s why they have got so big. They know all the rules and regulations and are able to apply them to maximise claim value. They will more than likely perform an internal review of your claim before submission and in all probability they will stand by your side during an HMRC investigation. Unfortunately, a large company will have large overheads and that will be reflected in the price that they charge, usually somewhere between 25% to 30% of the claim value.

Remember, when shopping around for a R&D Tax Credit claim provider, do not be swayed by just the price charged for the service. Ask if the company conducts an independent review of each and every claim before submission and confirm that they will be by your side should HMRC investigate a claim.

At the end of the day, you are paying for a quality service from your R&D Tax Credit claim provider and the old adage “the bitterness of poor quality remains long after the sweetness of a low price is forgotten” is still true today!

R&D Tax Credits - Is your company sat on a hidden fortune?

websitebuilder-hub@lcn.com — Thu, 11 Nov 2021 10:34:37 GMT

Research & Development tax expert Phil Andrews from Lydbury R&D explains that with an average first claim worth around £50,000, it’s well worth taking a look at the R&D Tax Credit Scheme.

The R&D Tax Credit Scheme is a bit of a mouthful, I agree. But for those of you who’ve never heard of it, turns out it’s a great way of getting hard-earned cash back into your business. And it does this by returning some of the money you’ve already spent on eligible R&D work.

‘Ah … but we don’t do research & development’ I hear you say.

Well, if only I had a penny for every time a client has said that yet still gone on to make a successful claim. So you’d perhaps be surprised about what actually is and isn’t eligible R&D work. For sure, it’s not just about the development of self-landing rockets and life saving vaccines!

So how does it work?

The scheme’s run by HMRC, the UK tax authority, but sponsored by the government. And the government’s keen to promote the scheme because it just so happens that most companies reinvest the money they receive in even more R&D, setting up a positive cycle which benefits all involved – including the government.

And, when you consider that for even a relatively small company, an average first claim is typically around £50,000, it’s easy to see how the scheme has a powerful financial effect.

Why HMRC though? Well, simply because money is returned through the corporation tax system - either in the form of a tax credit (cash payment) or as tax relief (a reduction in tax owed) or a combination of both.

But given that HMRC’s obliged to safeguard taxpayers’ money, there’s understandably lots of rules about what is and isn’t eligible R&D. That said, it’s worth noting that if the rules were too onerous, few companies would bother to make a claim.

This means that whilst there are rules, these are fair and balanced. And it’s the job of an experienced R&D consultant to help a company navigate these rules, making sure they’re properly applied whilst still maximising the value of a claim.

Are you eligible?

To confirm eligibility, ask yourself the following question:

During the previous couple of financial years has your company spent time and money trying to develop something new or trying to improve something that already exists?

This ‘something’ could be a product, a process, a material or even a service. Plus, it doesn’t have to be particularly high-tech. It could have been something as straightforward as a new hand-tool developed to help improve part of a manufacturing process. Or, it might have involved the development of a bespoke software solution needed to help improve your processes or services.

And, it doesn’t even have to have been developed by you. It’s fine if some third-party did the work on your behalf, so long as they were paid by you for that work.

It’s also important that the development work involved some form of technology or science. So next, ask yourself:

In doing this development work, did the people involved learn something technically new to them?
And, was the outcome of this work something which, in your opinion, increased (or advanced) the existing level of technical knowledge or capability within your industry?

If yes, the next issue relates to something called ‘financial eligibility’. And this boils down to a simple but important question:

In doing this development work, did your company take the financial risk?

This means that when you spent time and money on the development work in question, you had no guarantee that you’d recover the cost of this either through new sales or because a customer paid you for that work.

Real-world examples

A company which designs and manufactures industrial brake pads was asked by a theme park to improve the braking performance of one of its high-speed roller-coaster rides. The company began an intensive seven-month development process which resulted in much improved brake pads. And this was important not just because it helped improve safety at this theme park but also, because this new type of pad can do the same for lots of other high-performance equipment.

A company which designs building façade panels was asked to create large fins which would be attached at various points around a tall multi-storey block. The idea being that these fins would create an unusual visual effect. The problem was, however, that the fins were so big and often so exposed to high winds that they acted like an aeroplane wing - in that they created lift and drag and so tried to pull themselves free of the building! The company spent only a week or two designing the fins but several months developing a suitably strong, yet affordable, attachment solution.

Ask the experts

So, the good news is that if you answered yes to the above questions, it’s very likely that your company is eligible for an R&D tax credit claim. The next step is to identify the eligible R&D work you do, properly document this and accurately cost it.

And for this, we recommend you use an R&D tax specialist. After all, understanding and applying HMRC’s more than 180 pages of rules is complicated and takes a lot of technical and financial expertise. Also, following some large and regrettably fraudulent claims, HMRC now more than ever carefully scrutinises every claim it receives to ensure compliance. So our advice is to always engage a reputable and experienced R&D specialist to help maximise the value of your claim and the likelihood of its success.

Phil Andrews is Managing Partner of Lydbury R&D and has helped companies in almost every industry sector to make successful R&D claims. More about Lydbury R&D can be seen at www.lydbury.co

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