2024 was an interesting year in the world of R&D tax relief. I use the word ‘interesting’ in its most liberal sense; 2024 was a year in which we witnessed a lot of important events, which few could have predicted as 2023 ended and we stepped into a fresh year.

The beginning

The year started nervously for a lot of R&D advisors. The initial hope and excitement we had in 2020–21 that HMRC were finally going to deal with the rogue advisors who had plagued our industry, had long been extinguished. We had realised that the methods HMRC were going to use to achieve this would result in a lot of collateral damage, whilst seemingly having little impact on those advisors behind the submission of thousands of invalid R&D claims, who were still very much in business and raking it in.

HMRC’s change of interpretation of the key legislation with regards to subcontracted and subsidised R&D, back in 2021, was also having a real impact. This was not only during compliance checks, but also having to explain this change to clients, and then second guess how HMRC might interpret the contractual arrangements of their R&D projects.

Long running compliance checks into valid R&D claims, many of which opened in 2022 were still not resolved by the start of 2024. The logic employed by the Individuals and Small Business Compliance (ISBC) team at HMRC was showing no signs of becoming any less bewildering.

The R&D tax relief rates had also dropped for SMEs, for periods started on, or after, 1 April 2023. Whilst this hadn’t had much impact yet, we knew that further into 2024 it would start applying to a lot more companies, and in some cases would have a dramatic impact on the benefit their claim would provide.

So, due to the above, the start of 2024 didn’t feel like a great time to be an R&D advisor; well, not an honest one anyway.

Calm before the storm

There was, however, a glimmer of hope, which kept us going through the first months of the year. Two First-tier Tribunal cases had been heard at the end of 2023, the results of which would establish if HMRC’s new interpretation of the subcontracted/subsidised legislation was legally sound, or not. Whichever was determined, at least some clarity would be provided over one of the big issues R&D advisors were having to deal with.

As we reached March, there was still no update on when the result of the Tribunals would be forthcoming. However, we did get the news that RDI Solutions, who had claimed to have secured ‘£200m in business funding through Government tax incentive schemes to over 3,000 clients’, had suddenly ceased trading, seemingly by choice.

Why a company which had achieved such massive results since it started trading just over four years earlier would suddenly close was unclear and speculation became rife.

Had HMRC shut them down? Had they syphoned millions of pounds offshore and were those behind RDI currently sat on a beach in a non-extradition country? We simply didn’t know. HMRC have been very quiet on the subject, and at the beginning of 2025, we are still not much wiser. Based on what’s come out of the woodwork over the past nine months though, I know where I would place my bets.

April started out fairly quietly. The new merged scheme went live but, as that only applied to R&D claims for periods started on or after 1 April 2024, it wouldn’t have any impact on most companies until 2025.

Then we reached the evening of 25 April, when it’s fair to say my year changed dramatically due to a knock on the door of my family home. For those not familiar with the story, it’s well documented on LinkedIn and on the Tax Policy Associates website.

Whirlwind

The next six months for me were a total whirlwind. Going from being a little R&D advisor in a sleepy Suffolk village to working with Dan Neidle to expose large scale R&D fraud isn’t how I would ever have imagined my year progressing. I didn’t even know who Dan was coming into 2024, but it was very interesting and a period of my life I shall certainly remember.

Towards the middle of the year, we realised that the dreaded notices of a compliance check into a client’s R&D claim, seemed to have dried up somewhat.  Speaking to other R&D advisors I would consider reputable, I was hearing the same, with many of us not having seen a brown envelope in over 12 months.

As an aside, the reason compliance check notices filled R&D advisors with dread wasn’t that HMRC had opened a check, as they are a necessary part of HMRC’s work. It was that if you saw the notice was signed by ‘R&D Tax Credits Compliance Team’, it meant that the compliance check was being handled by the ISBC team at HMRC, and no matter how solid the claim, it was likely going to be a very long slog to try to get HMRC to accept this, and alternative dispute resolution (ADR) or a Tribunal would probably be necessary to prove that the claim was, in fact, valid. That’s assuming your client had the appetite, and means, to take the claim all the way to a Tribunal.

It was a very uneasy ceasefire though; if HMRC had shown us anything over the past few years, it was that they had become increasingly unpredictable. Their sudden reinterpretation of key legislation, their use of poorly trained case workers, and their decision that during Research and Development Consultation Forum (RDCF) meetings advisors should be neither seen, nor heard, all meant that it was anyone’s guess what surprises they would have in store for us as we continued through 2024.

With the summer holidays underway and those of us with school-age children counting the days till the schools would reopen, Tax Policy Associates released their first article concerning Green Jellyfish which accused them of being behind the submission of vast amounts of fraudulent claims for R&D tax relief. A subsequent article posted a week later alleged that these fraudulent claims had cost the UK at least £100m, so more than just a drop in the ocean.

Whilst this no doubt came as a shock to a lot of people, especially the clients of Green Jellyfish, most R&D tax advisors would have already been aware of Green Jellyfish and their reputation for engaging sectors where qualifying R&D was unlikely to have taken place, such as care homes. But it was very good news that the information was finally out there, as it might nudge HMRC into finally taking some meaningful action.

After what seemed like a very long wait, although I’m told was fairly quick by their standards, HMRC conducted a raid on Green Jellyfish and several of their connected companies including Kirby & Haslam, on 24 September, which resulted in 11 people being arrested, with a number of others being invited to attend an interview under caution.

This positive action by HMRC reignited some advisors’ hopes that they were taking the issues of advisor-led fraud in the R&D tax relief sector seriously. Whilst there was still a long way to go, this was a very promising start.

The fall

October brought us some treats. Firstly the Scottish court case ofZ LX Ltd v James Mackie Wholesale Ltd was published. Most R&D advisors couldn’t believe ZLX had taken a client to court after they refused to submit an obviously invalid R&D claim for a refrigerator install, and ZLX then attempted to sue the client over a nonsense cancellation fee.

Thankfully, the judge saw sense and threw the case out. However, ZLX then decided to draw even more attention to themselves by getting their solicitors to issue bogus threatening letters to anyone who mentioned the case on social media, me included.

Later in October, the findings of one of the earlier-mentioned Tribunals, into HMRC’s revised interpretation of subsidised and subcontracted R&D was finally released.

Like most advisors, I was very pleased that we would now have some clarity on the matter. The Tribunal ruled that HMRC’s rejection of Collins Construction Ltd’s R&D claim on the grounds the project was both subcontracted and subsidised, was wrong and not in keeping with the legislation (Collins Construction Ltd [2024] TC 09332).

Whilst this was a great win, we would have to wait to see if HMRC would appeal the ruling, as if they did this would mean we would have to wait even longer to find out how we should proceed.

Hopeful outlook

In November, we received the ruling for another Tribunal case. This time it was Stage One Creative Services Ltd [2024] TC 09358, and once again HMRC lost on their rejection of the company’s R&D claim on subcontracted and subsidised grounds. More good news, but as with the Collins case, we would have to wait and see if HMRC would appeal the ruling.

Then, as an early Christmas present on 17 December, HMRC announced that they would not be appealing either Tribunal ruling, and they would publish further guidance in 2025 with regards to this.

This was a good end to the year. However, some of us did feel HMRC should have known this was the likely outcome. It felt to us that they had just spent the last three years challenging many SME R&D claims as invalid, using flawed reasons in the sub-contracted/subsidised cases, and often on flimsy technical grounds where the ISBC team was involved. At the same time, we felt the Government was rushing the scrapping of the SME scheme and introducing a new merged scheme without any form of proper consultation. It was difficult not to suspect the two things were related.

So, that was 2024 in the world of R&D tax relief and as we start 2025 there certainly appears to be more hope amongst R&D advisors than at the start of the previous year.

We finally have some clarity on the subcontracted/subsidised issue, the new merged scheme should make things easier, and with both RDI and Green Jellyfish now closed down, amongst several smaller less than reputable advisors, it seems HMRC’s new anti-abuse measures might be starting to show results.

Here’s hoping for a more peaceful, and stable, year as I for one would most certainly appreciate it.

Posted: 29 Jan 2025