The Association of Taxation Technicians (ATT) has published its response to HMRC’s consultation on the future of R&D tax relief.
They represent over 9,000 members and fellows, and 5,000 students. So their voice is an important one.
Two of their answers are particularly significant: an aversion to merging our two current R&D schemes into one and a crackdown on “rogue” R&D advisers.
What is the purpose of HMRC’s consultation?
The ‘R&D Tax Reliefs Consultation’ is part of HMRC’s information collecting before making any adjustments to the R&D system as a whole. It was opened to all interested parties, consisted of 17 questions and closed on 2nd June 2021.
The government has set itself the target of increasing R&D investment to 2.4% GDP by 2027. As the introduction to the consultation says, “R&D tax reliefs have a key role in incentivising this investment by reducing the costs of innovation.”
It’s crucial to involve experts during the process, in order to get the broadest picture of the current situation and to mine expert minds for potential ideas.
Keep separate R&D tax relief schemes
There are currently two separate R&D tax relief schemes. R&D Tax Credits for SMEs and the Research and Development Expenditure Credit (RDEC) Scheme for large companies.
Question 2 in the consultation document floats the idea of merging them into one R&D tax relief scheme for all businesses.
“Is there a case for consolidating the two schemes into one? What do you value about the design of the current schemes that might be lost if they were unified?”
This is so the government can understand “from stakeholders their views on why RDEC appears to have a greater impact on stimulating R&D investment than the SME scheme, and why additionality might be falling.”
In their response, the ATT clearly addresses this issue:
“2.3 We do not believe there is any case for consolidating the two schemes into one.
“2.4 The current differences between the two schemes reflect the very different natures and needs of SMEs and larger companies. The simple to understand enhanced deduction and repayable credit offered by the SME scheme is of real value to SMEs who, by contrast, would benefit less from an ‘above the line’ credit under the RDEC scheme.
“2.5 The two current schemes are well established, and the distinctions between them are generally well understood by advisers. Claimants themselves are also often familiar with the scheme they currently use, and in our members’ experience it is relatively uncommon for businesses to move between the two schemes. Merging the two schemes would require claimants and their advisers to adapt to new rules, potentially causing confusion and increasing the risk of errors without, in our view, delivering any particular benefit.
“2.6 Even if the two schemes were to be merged, the new combined relief may still need to be adjusted so as to apply differently to SMEs and larger companies. For example, it may be desirable to offer a higher level of relief for SMEs, or reflect current differences in the treatment of subcontracting between the two schemes. In the extreme this could lead to two different schemes existing anyway.”
Getting rid of “rogue” R&D agents
Question 6 of HMRC’s consultation focuses on the use of R&D agents:
“When did you first claim, and what prompted you to do so? Do you use an agent? If so, why? What is your experience of how agents’ fees are structured? How could the expertise and specialist knowledge of agents assisting with R&D claims be improved?”
THe ATT’s response raises the important issue of regulating those who don’t belong to a professional organisation but present themselves as R&D tax relief experts.
“2.16 In our experience, whilst a company may be alerted to the possibility of an R&D claim by their regular agent, they will often turn to a specialist firm to assist with preparing and quantifying that claim. These specialist firms typically charge a fee based on a percentage of the actual claim.
“2.17 Whilst the vast majority of specialist R&D advisers submit accurate and appropriate claims for relief, we are aware that there is a minority of ‘rogue’ advisers who will seek to inappropriately maximise claims, especially where their fee is calculated as a percentage of that claim.
“2.18 Members of the ATT are required to adhere to the requirements of the Professional Conduct in Relation to Taxation (PCRT). The PCRT bodies have recently published specific topical guidance for members on the application of PCRT to the provision of R&D tax credit services.2 This makes it clear that members should, amongst other things, not undertake R&D work where they do not have the required knowledge and experience, and must not make misleading or inaccurate claims in their promotional material. If an ATT member fails to adhere to the principles set out in PCRT, they are liable to be subject to disciplinary processes.
“2.19 However, ‘rogue’ advisers may not be members of a PCRT body. HMRC should consider how best to target these advisers to ensure they are held to the same standards. As set out in our response to question 8 below, this could include education campaigns, or the introduction of a route for concerned individuals to report suspicions regarding inappropriate claims, advice or promotional material.”
ATT’s President, Jeremy Corker, explains their motivation: “This behaviour is driven by two factors – the R&D rules are not prescriptive meaning there is a lot of room for interpretation, and claims can trigger a cash repayment, which especially in the current climate, can sound very attractive to companies.”
Serious consequences for businesses
Any professional body, like the ATT, is responsible for upholding the high standards it sets for its members. But anyone operating as an R&D expert, without belonging to any organisation, is entirely unregulated.
For us here at DSM R&D Tax Credits, it’s particularly important that these fraudulent R&D companies don’t exploit any more businesses. There are such serious consequences for making false R&D tax relief claims and they all fall on you – not the rogue company you entrusted with your application.
Be very careful who you trust with your R&D Tax Credit or RDEC claim. Your R&D advisor should be qualified and registered with a professional body. You can see our credentials here. And you don’t have to take anyone’s word for it, you can check with the organisation itself. Just do the same due diligence you would with anyone you’re inviting into the heart of your business.
A good R&D tax relief agent will make sure that you don’t miss out on any qualifying projects or expenditure and get you a substantial amount to invest into your next innovation. Just make sure you get one of the real ones.