I’ve just been thinking about how the conversation between us and our prospects has changed significantly over the last decade or so.  Prospects used to come to us and say:

“My accountant says that we should look at R&D tax relief.  What is it?”

In the early days, my main concern was that there weren’t enough accountants aware of which clients could potentially qualify for &D tax relief so a lot of companies who qualified weren’t aware that they did.  Companies had 2 years from the end of an accounting period in which to claim for R&D tax relief and a lot of qualifying companies missed this deadline.

Then the question became “We’ve been told that we qualify for R&D tax relief, can you help us make a claim?”

It was promising to see that awareness of the R&D schemes was raising but there seemed to be a big problem with R&D salespeople promising companies that they qualified for R&D tax relief without properly assessing whether they did.  Even more concerning was that there seemed to be no one within certain companies checking whether the claims qualified before submitting them.  At this time, most people didn’t realise that HMRC didn’t check a lot of R&D claims and so assumed that any claim that went unchallenged was successful.

A little later, we started hearing “We’ve been successfully claiming R&D tax relief for years, can you help us going forward?”

It didn’t take us long to realise that a high percentage of the companies who had been claiming for years didn’t actually qualify for R&D tax relief and had just been lucky that HMRC hadn’t checked one of their claims yet.  This wasn’t surprising as at the time it was estimated that HRMC checked around 20% of claims and tended to focus on the higher value ones.

Most of these companies were shocked to realise they didn’t qualify.  Sometimes this was because they or their advisor misunderstood the rules around R&D tax relief.   More concerningly, a lot of R&D advisors didn’t seem to care whether a claim was valid or not as in most cases HMRC wouldn’t check the claim and if worst came to the worst, HMRC could deem a claim invalid, in which case the claiming company could be fined – not the R&D advisor!

Now, we are much more likely to hear: “HMRC have opened an enquiry into our R&D claim/s.  Please help!”

We still spend a fair amount of time explaining to companies that they can’t have ‘successfully’ claimed in the past unless HMRC have opened an enquiry into their claim, checked that it meets the relevant criteria and accepted the claim as valid.

In a lot of these cases, once we review the claim in question, we conclude that it’s not qualifying and can only advise that the claimants hold their hands up and tell HMRC that they made a mistake.

For those companies that we think do have a qualifying claim, the advice we can give still isn’t completely positive.  Because of the high number of fraudulent claims that have been submitted over the years, HMRC have sought to increase the amount of claims it can check.  However, staffing levels with were a problem so HMRC increased the number of employees involved in this process and also changed to a ‘volume-checking’ approach.  This has not worked as well as hoped – HMRC itself have admitted to training issues on a number of occasions – and the current enquiry process is lengthy, laborious, inconsistent and can lead to valid claims being rejected for illegitimate reasons.

The moral of the post is that something has gone wrong along the way and efforts to combat this don’t seem to be working.  I say ‘don’t seem to be working’ as I still have hope that HMRC are working away in the background on something that will return real results but I wonder – Am I being too optimistic?

If you have any questions on this blog or anything R&D related, please contact us at [email protected].

Posted: 20 Nov 2023