In 2020, three men were jailed for a total of 21 years for trying to scam HMRC out of nearly £30 million in R&D tax credits for a fake IT project.
Given that the average annual SME R&D tax credit claim is £57,000, it was an extreme case of fraud. But, it highlights the jeopardy HMRC faces in defending the public purse.
As R&D tax credits have been made more generous and become more popular, the scheme has sadly been abused more often. Sometimes this will be done by companies on their own initiative, and sometimes it will be rogue advisers manipulating naïve companies.
Many specialist advisory firms will take a percentage of the claim, and some are motivated to make a spurious claim (from scratch or inflated) as they have so much to gain.
So, what can you do to protect yourself?
HMRC’s compliance staff
First of all, be aware that the tax authority is far better resourced to investigate suspicious claims. In 2020, HMRC hired 100 extra compliance staff to carry out this task.
Even if your claim is eventually proved to be valid, going through the enquiry process can be an expensive, stressful exercise lasting weeks or months.
If wrongdoing is found, you may face a range of outcomes: from having the claim rejected, to having to repay past claims plus interest, to paying financial penalties as well as, in the most serious cases, face prison.
What to look out for before hiring an adviser
We hesitate to bring out the old adage “if it seems too good to be true…” one would normally say when talking of a scam.
This is because if you are relatively new to R&D tax credits, even a legitimate claim can seem so rewarding that it can’t be right, but is.
What you need to do is really scrutinise what a potential adviser is saying. Ask yourself:
- are they presenting information to you professionally?
- are they acknowledging the risk of over-claiming?
- can they demonstrate the expertise they have within their firm?
- can they show a track record of success and a proven process?
- are they members of any professional bodies that hold them to account?
- do they stand by their work? Is an offer to support you in an enquiry a default in their terms?
These are all the kinds of areas which will help you determine if they are legitimate. But even when they have answered your questions, go away and do some independent research.
What about during a claim?
A, R&D claim is submitted through the corporation tax return.
A robust claim will be supported by detailed workings of how the figures were arrived at, as well as a technical report on the nature of the R&D, linking it to HMRC requirements.
It will also need your input or that of a competent professional within your business.
If any of these are missing or do not accurately represent the R&D, alarm bells should be ringing.
If you want to discuss a potential R&D tax credit claim with us, or have a current claim reviewed by our experts, please get in touch.