Anyone involved in the R&D tax relief market will have experienced the volatility and changes the last two years have brought. Changes in rates, focus and scrutiny from HMRC resulting in a significant increase in enquiries, and the introduction of the new merged RDEC scheme.
Alongside these changes has been a reflection on the roles and responsibility of the filing agent. This has led most accountants to consider whether they should be preparing R&D tax relief claims themselves internally or whether they should be outsourcing to a reputable specialist.
We have had numerous conversations with accountants trying to navigate these complexities. The aim has always been to provide their clients with the best service, but questions over when to use their knowledge to undertake CPD and prepare claims themselves, or when to introduce a third-party specialist to their client, has been a deliberation for many.
The impact of Professional Conduct in Relation to Taxation (PCRT)
The release of PCRT guidance, relating specifically to R&D in 2020, highlighted the need for competency of its members relating to R&D tax relief. Its key principles stated that advisors should only provide R&D tax advice if they possess the necessary knowledge and expertise. It highlights the need for sufficient experience to be able to correctly assess qualifying activity and costs in accordance with the BEIS (now DSIT) guidelines. At the same time the professional bodies were offering downloadable content relating to R&D tax, webinars and other learning tools to give their members confidence to prepare claims. For many in the profession, there were mixed messages over whether they should be seeking external expertise or undertaking this work themselves.
The main professional bodies actively promote ethical conduct and standards among their members, and adherence to PCRT is mandatory for members of each professional body. However, did the professional bodies make it clear that that the skills required to prepare R&D tax relief claims were, more often than not, outside the scope of most accountants? Accountants would clearly be competent in preparing the financial assessment, but not necessarily in the understanding of technologies.
The reputational risk to accountancy firms when R&D claims are challenged by HMRC
This has led to some challenging conversations between accountants and their clients, where claims have been made in good faith, but without the required understanding of legislation, guidance and interpretation. Clients turn to their accountant looking for answers as to why their R&D claim is deemed non-compliant, and they find themselves having to pay back to HMRC the tax due, potentially also with penalties and interest. We have spoken to many accountants concerned with specific client relationships due to having to withdraw an R&D tax relief claim.
One such accountant clearly took their responsibility very seriously and worked hard to understand both their client’s activity and how it met the requirements of the legislation. Unfortunately, through the enquiry process it was deemed that much of the work was routine and not technologically advancing from the known baseline. The client found themselves with a bill for £350k across the two years that had been enquired in to. The Directors were deeply concerned as to the effect this would have on the viability of the business. The accountant had provided the advice to the best of their ability but, not being experts in the field of software development, had supported the filing of a claim that didn’t meet the required standards. Such difficult situations have become commonplace, and a worry for many.
The role of professional bodies in encouraging members to offer R&D tax advice
The encouragement by the professional bodies to support clients with R&D tax relief claims has caused many accountants to support their clients, ill-equipped to do so. Changes over recent times have caused many to reflect on their adherence to PCRT in continuing to take agent responsibility for the submission of a CT600 including an R&D tax relief claim. Practices are now taking very seriously their role as filing agent and only filing R&D tax relief claims prepared by certain reputable specialists. Others are refusing to file third-party claims and requiring such claims to be filed by the specialist directly through an amended return.
Whatever the parameters or due diligence being undertaken by the practice, the focus on their responsibilities under PCRT has become paramount in their decision making. This seems now to be backed and strongly supported by the professional bodies. If only the same encouragement had been given 5 years ago, maybe a number of accountants wouldn’t have gone through some of the challenges and sleepless nights the last two years has bought.
