R&D risk for accountants has increased: what you need to know
By Justine Dignam, director of Tax and Incentives at Markel Tax
Regulations around research and development (R&D) submissions are evolving, including a new requirement for accountants to include their name on clients’ R&D claim submissions. The requirement, which has been in place since August 8 2023, means accountants have had to take a degree of responsibility for client claims, something which was not the case previously. What implications does this have in practice, and what additional risks do accountants now face? Justine Dignam, Director of Tax and Incentives at Markel Tax, explores these questions.
With claims totaling £10.2 billion in 2022/2023 and latest government estimates indicating that around 17% of claims were made through error or fraud, representing £1.1bn in 2020-21, HMRC has been intensifying its focus on R&D claim compliance. 25% of the value claimed under the SME scheme was found to be non-compliant. 250 inspectors are now dedicated to closely examining submissions and one in five claims are estimated to be under review meaning that many claimants can expect unwanted scrutiny from HMRC.
Last August’s changes dictated all claims to be filed electronically, requiring accountants to sign off their clients’ R&D claim submissions. Previously, clients could work directly with independent R&D advisors without input from their accountants if they chose to do so. However, this is no longer the case, and accountants now face several challenges due to their increased involvement in R&D claims.
One challenge is the technical expertise required to assess the validity and accuracy of R&D claims. Accountants are bound by ethical standards to provide accurate information to HMRC, but verifying R&D claims typically requires a deep understanding of the R&D activity being claimed for, which is often centred around complex scientific and/or technological advancements. R&D submissions must now outline details of the projects and expenditure claimed, including the technical innovation, and how technical uncertainties were overcome. Accountants may not always have the necessary scientific or engineering knowledge to assess and present these issues accurately.
Accountants must now consider whether they can confidently endorse their clients’ R&D claims by putting their name on submissions. To protect their reputation, seeking an expert second opinion may be advisable, but this raises questions about who should bear the cost and whether clients should be charged for the additional review time. These challenges are magnified when clients submit claims for multiple accounting periods within a short space of time.
HMRC has also shifted accountability for R&D claims, with business owners now facing fines and penalties if their claims are deemed invalid. Accountants and R&D advisors may be called upon to explain why they believed the claim was valid, potentially risking their reputation if the claim is found to be inappropriate.
In response, some accountants are choosing to distance themselves from clients with questionable R&D claims to protect their reputation. HMRC is also taking a tougher stance against fraudulent claims, leading to decreased relief rates for SMEs. This crackdown is aimed at deterring system misuse and ensuring that genuine technological advancements receive the support they need.
As HMRC’s scrutiny of R&D claims intensifies, R&D advisers have a bigger role to play in supporting accountants and their clients in navigating enquiries. Access to advisers with software engineers, scientists, and other experts can ensure that innovations are properly understood and evaluated. By working together, the industry can strengthen the R&D support system and ensure that legitimate claims receive the necessary backing they deserve.
More information on the R&D advisory services provided by Markel Tax can be found here.
