Accountants urged to defend clients against HMRC R&D investigations

Markel Tax has warned UK accountants and their clients that the surge in HMRC Research and Development (R&D) tax credit claims investigations, combined with stricter submission rules, is putting them at significant risk. 

The firm’s warning follows its prediction that by the end of the year, investigations into R&D claims will have risen by a staggering 900% from levels seen in 2019, as it is currently seeing approximately one in 25 R&D submissions being targeted by HMRC. 

HMRC is increasingly targeting R&D claims in their efforts to eliminate “erroneous submissions filed by unscrupulous advisers” seeking to take advantage of the system at a cost of £469m to the UK taxpayer in 2021/22.

The government department now has 245 dedicated R&D inspectors, many recruited in the last 12-18 months, to scrutinise R&D claims and have already issued thousands of letters to claimants about their submissions. This increased focus is a means to claw back revenue when the government is looking to boost receipts as the country enters a tough economic period.

Justine Dignam, director of tax incentives and reliefs at Markel Tax, said: “R&D tax relief is an unregulated market. There has been an explosion in providers misleading SMEs about what qualifies as R&D and failing to ensure that submissions sufficiently document a company’s eligibility to claim. 

“We have seen instances of claims being prepared for restaurants simply developing a new recipe and for care homes for producing medication plans – things that any credible and professional provider would immediately reject.”

With legislative changes having been implemented on 1 April 2023 and with further changes to come this August, submissions must evidence the intricacies of the research and development at play, the baseline of technology, how it is being implemented, and to what degree it qualifies as a significant scientific or technological advancement. 

In addition, each claim will need sign-off from a designated officer of the claimant company placing them under the microscope should a claim be subject to enquiry. 

Dignam added: “Accountants must act now to protect themselves and their clients against the risk of an HMRC investigation. We are seeing a sharp increase in the number of accountants contacting us looking to support clients as the legislative changes approach.”