A report from accountancy firm, Price Bailey, has accused HMRC of “abusing its power” in relation to amendments of R&D tax claims, leaving many advisers in the sector to clear up confusion.
randd uk, Derby-based R&D tax specialist, has advised accountants and claimants in the sector to take a more balanced view of the situation – as HMRC seeks to balance incentivising innovation with Treasury demands for a reduction in the tax gap.
In the report, Price Bailey accused HMRC of “avoiding opening formal enquiries”, although Adam Bointon, Technical Director at randd uk, said that there are “clearly more investigations than in previous years”.
Adam further commented that: “We can see that recent changes in the R&D tax scheme have led to increased levels of anti-fraud measures.
“HMRC has been given additional resources to administer and monitor the scheme, and they were probably told to reset it by the Treasury and House of Lords, which saw it as a significant revenue leak. This is an understandable perspective, given the issues the scheme has faced in the past.
“I would largely say they’ve been successful – a lot of companies in “non-R&D” sectors will not be claiming going forward, and several questionable R&D agents are no longer around, so HMRC may well see it as a success.
“Sadly, for clients, it’s been a bit of a shock treatment.”
randd uk acknowledged that amendments to claims and ‘nudge letters’ regarding largely valid claims are “essentially an accusation of fraud”, with Adam pointing out that:
It’s an extremely concerning letter for clients to receive, particularly where they have put together a clearly eligible claim or haven’t used the scheme before.
“I’m not sure HMRC realise the distress it causes when they send these out. We try our best to allay those concerns, but clients are still understandably shaken.”
Despite these concerns from clients and accountancy firms, Adam pointed out that criticism of HMRC often “doesn’t tell the whole story” – with many critics misdirecting critiques that may be better aimed at the Treasury itself.
Adam said: “HMRC has been severely criticised in a number of reports and studies for the way it has administered the scheme in the past.
“However, HMRC are civil servants at the end of the day, and they take their instruction from the Treasury. It is massively under-resourced to properly police a scheme that has grown massively over the past five years or so – and that has had its fair share of compliance issues in the past.
“From our perspective, our biggest concern has been the lack of communication from FIS. Sometimes the first the client knows about any amendments is when their accountant checks their Government Gateway. Even then, in the case of loss-making businesses with no Corporation Tax to pay, there’s still nothing to see.
“It’s the lack of knowing what the situation is and the lack of communication from HMRC, which causes the biggest frustration. Addressing this could go a long way towards resolving the criticism facing HMRC at this time.”
