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R&D tax relief: Accounting for change

With the Government R&D tax relief consultation well underway, Kelly Oakley CTA, an associate director at R&D tax relief consultancy ForrestBrown, explains what a regulated R&D tax advice market would mean for accountants (and their clients).

Let’s be honest, relations between accountants and specialist R&D tax advisers can sometimes be a bit fractious.

It’s not surprising; R&D tax relief services comprise a relatively small slice of total revenue for accountants – and yet, we regularly see them and their clients falling foul of poor advice from R&D tax ‘specialists’.

As the R&D tax advice market has grown, this situation has become increasingly untenable. That’s why ForrestBrown is campaigning for enhanced regulation of our market. We’re passionate about R&D tax relief and are loath to see it misused.

It would seem that the Government has caught on as well. Its wide-ranging consultation and review of the R&D tax relief system is a remarkable opportunity to fix the stubborn issues that frustrate (and harm) accountants and businesses.

Why does this matter?

The partially regulated tax market causes particular challenges when it comes to R&D tax relief. Many accountants find that their clients are relentlessly cold-called by unregulated R&D firms, sometimes with promises of securing substantial sums in tax relief. Unfortunately, these promises are often too good to be true.

Accountants pride themselves on looking after the interests of their clients, which includes identifying opportunities for them to access genuine incentives and reliefs, like R&D tax relief. However, spurious advisers have been known to paint a picture of accountants as being too conservative in their assessments. This can cause real harm to existing client relationships, and  given that so many R&D claims are automatically processed and paid out by HMRC, clients mistakenly take this as proof that the R&D adviser was right and their accountant wrong. It’s a widespread misconception that a paid claim is an approved one.

In addition, it’s not uncommon for accountants to be put under undue pressure to submit an amended tax return at the very last minute. This might be the first they’ve heard of their client making an R&D claim, and it places them in a difficult position (especially if they have doubts about the validity of the claim). We have heard accountants express concerns regarding how filing the amended tax return sits with their professional indemnity insurance, and where responsibility to deal with an HMRC enquiry into the claim would fall. Many accountants are now confident enough to refuse to file returns where they have concerns, but this can ultimately put further strain on their relationship with their client.

Qualifications and market regulation make good sense

R&D tax relief is often viewed differently from other areas of tax. But it is still tax advice and it follows that the person providing it should be suitably qualified and experienced to do so. However, many of the new R&D providers have no tax or accounting qualifications and no experience within either R&D tax advice or the wider tax market. This is often not understood by clients, who incorrectly assume the market is regulated, meaning they risk sleepwalking into poor advice.

Requiring those that market and charge for tax advice and services to be professionally qualified would mean they have to adhere to the fundamental ethical principles set out by their professional body and follow regulatory expectations, such as carrying out anti-money laundering (AML) procedures, fully explaining risks to clients, and not making misleading claims.

Support for a regulated tax advice market is growing. One of the world’s leading professional bodies for accountants, the AAT (Association of Accounting Technicians), has actively campaigned for increased regulation within the market, while a survey released earlier this year showed over three-quarters (78%) of UK MPs are in favour of stricter regulation, too.

For those who have fallen foul of poor advice, this move is long overdue. Spurious advisers often describe R&D tax relief as “risk-free money”, making no mention of a possible enquiry or penalty. And companies simply do not believe that such blatantly misleading marketing claims would be allowed if they were untrue.

It only takes a short browse through the internet to realise that there are a lot of wild promises made within the market, supported by misleading statistics. Many of these are completely meaningless, such as 100% success rates, or simply untrue, such as advisers having HMRC approved methodologies. While someone within the industry would see through these claims, they sound impressive to someone outside it.

After working in the industry for many years, it’s alarming to see that these tactics are still working, and in the current absence of regulation, it’s something that accountants and reputable R&D tax advisers must work through together to raise awareness and protect businesses.

How you can protect your clients right now

The reality is that, while the threat posed by poor advisers is clear and present, regulation of the market may be a way off. But there are steps that accountants and advisers can take right now to help protect clients.

Step one is taking a proactive approach to educating businesses about the R&D tax market. Many companies are unaware of what to look for when choosing an adviser. This is something that you can help with.

You don’t need to explain the ins and outs of R&D tax relief.  Instead, instil an understanding that the R&D tax advice market is very competitive and that it is hard to compare different propositions.

Personally, I recommend talking your clients through the following factors (this can also be used to help them review their current provider, too)

  • Are they chartered tax advisers or accountants? The starting point is always to ascertain an adviser’s tax qualifications and experience.
  • How often do they handle R&D tax credits? That is, are they specialists?
  • What industry experience do they have? R&D tax relief incorporates fields of knowledge from beyond tax. An R&D tax adviser should have industry and sector expertise on staff, not just tax expertise.
  • What will your client’s overall time investment be? Different advisers offer very different services. Some advisers will invest a lot of time themselves in understanding your client’s business, preparing the claim and handling the submission. Others require the cleint to analyse costs and write up case studies themselves.
  • Is enquiry support included in the contract terms? HMRC enquiries happen. Does the adviser guarantee enquiry support as part of their fee? And what experience do they have dealing with HMRC on enquiry?
  • What’s in the fine print? Common gremlins in the T&Cs are locking clients into multi-year contracts and hidden charges.
  • How will the adviser work with you? This is vital. As your client’s adviser, you should have full access to your client’s claim documents

Towards a brighter future:

The relationship between accountants and specialist R&D tax advisers needn’t be a fractious one. Finding a partner that shares your firm’s principles offers an opportunity for both parties to forge a healthier working relationship as a result. One that seeks to provide mutual clients with the best possible advice.

There’s a long way to go before the outcomes of the consultation are clear, but there are steps we can take now to collectively ensure that we’re ready for a regulated R&D tax market – and that we’re all doing the right things.

By Kelly Oakley CTA, an associate director at R&D tax relief consultancy ForrestBrown

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