The number of full-service accountancy firms offering R&D tax advisory, particularly handling submission and managing enquiries from HM Revenue & Customs (HMRC), is decreasing.
Fewer firms are choosing to take it on or continue with existing practices, which is likely due to a combination of factors, including a recent HMRC crackdown on compliance issues.
Despite the fears which have arisen as a result, it still offers an excellent opportunity to provide a unique service to your clients, build another revenue stream and establish yourself as a reliable adviser in the R&D tax space.
Why now?
R&D tax relief has existed in some form in the UK since 2000, so it is not a new phenomenon which has, after the dust has settled, caused firms to scatter.
In fact, prior to mid-2023, R&D tax relief and credits were a growing field among accountancy firms – but this was precisely the problem.
HMRC found itself receiving claims in increasing numbers, with 43,665 claims totalling £4 billion in 2015/16, rising to £6.6 billion across 89,300 claims.
It predicted, at that rate, it would receive claims totalling £9.5 billion by 2027/28.
A 2023/24 crackdown, which is still ongoing, resulted in HMRC introducing a number of policies to prevent erroneous or fraudulent claims, which it says represented 16.7 per cent of all claims in 2020/21.
Such compliance measures, while a positive move for the integrity of the sector in the long term, has caused panic among accountancy firms, particularly those without in-house specialists in R&D tax.
However, despite these concerns, we are now in for a period of stability for R&D tax rules, making this an ideal point to re-evaluate your approach and revive your service.
Navigating enquiries
The major source of anxiety among accountancy R&D tax practices is the moving goalposts surrounding successful claims.
This has little to do with qualifying expenditure itself and all to do with how it is assessed, but this too is becoming clearer after a period of uncertainty.
In a bid to stop non-compliant claims falling through the net, HMRC are employing a range of techniques to identify them, including:
- Random enquiries
- Enquiries based on statistical analysis of claim patterns
- Enquiries based on flagged issues with submitted claims
The chances that a claim will be investigated has risen markedly from 2020/21 onwards, with accountants facing much of the scrutiny if they have submitted on behalf of clients.
There is also significantly more onus on accountants and their clients to provide information relevant to a claim via the Additional Information Form (AIF).
The AIF requires a substantial technical narrative which many accountants are now facing for the first time. Requiring full expenditure details and compliance data, the AIF has changed the face of R&D tax credits – and not in a positive way for accountancy firms offering an advisory service.
However, the AIF also represents an opportunity. It is the chance for your clients to demonstrate the value that they are creating in the R&D space and detail exactly how their projects comply with the latest regulations.
Growing or reinstating your practice
It’s no secret that the R&D tax landscape has been difficult for accountancy firms in recent years.
However, this is beginning to change as new measures settle in and compliance requirements become clearer.
Now is an ideal time to buck the trend and start or grow your R&D tax advisory. Firms which continue to reject this service may well end up losing work to those which embrace it, provided you embrace the right partner to advise you.
With our support, you can offer a unique service to your clients which adds value to their operations and eliminates the need to engage a third party for an isolated task.
There is no substitute for experience and expertise when it comes to something as nuanced as R&D tax reliefs.
Speak to a member of our consultancy team to get started in developing your R&D tax services.
