Key Takeaways:
- Investigations into R&D claims predicted to increase by a staggering 900% by the end of 2023 compared to 2019 levels.
- HMRC intensifies scrutiny on R&D claims to eliminate erroneous submissions and recover lost revenue.
- Accountants must take immediate action to mitigate risks, as legislative changes and stricter submission rules pose challenges for both clients and accountants.
Markel Tax, a leading tax services and insurance provider, has issued a crucial warning to UK accountants and their clients regarding the escalating wave of investigations into HMRC Research and Development (R&D) tax credit claims. The surge in investigations, coupled with stricter submission rules, puts accountants and their clients at significant risk, requiring immediate action to safeguard against potential consequences.
Rapid Increase in Investigations and HMRC Focus
Markel Tax predicts a staggering 900% rise in investigations into R&D claims by the end of 2023 compared to levels seen in 2019. Approximately one in 25 R&D submissions is currently targeted by HMRC, showcasing a dramatic upturn in activity. HMRC has ramped up its efforts to eliminate erroneous submissions filed by unscrupulous advisers who attempt to exploit the system, costing the UK taxpayer a staggering £469 million in 2021/22 alone.
To intensify its scrutiny, HMRC has employed 245 dedicated R&D inspectors, with many recruits joining within the last 12-18 months. Thousands of letters have already been issued to claimants regarding their submissions. This heightened focus on R&D claims serves as a revenue recovery mechanism for the government, particularly as the country faces challenging economic times.
Unregulated Market and Legislative Changes
R&D tax relief is an unregulated market, leading to an influx of providers misleading small and medium-sized enterprises (SMEs) regarding eligible claims. Insufficient documentation and inadequate representation of a company’s eligibility to claim have become prevalent issues. Markel Tax has encountered claims prepared for entities such as restaurants developing new recipes or care homes producing medication plans, cases that reputable providers would immediately reject.
With legislative changes implemented on April 1, 2023, and further changes scheduled for August, the risk has increased for both end clients and their accountants. It is imperative for accountants to take immediate action to minimize risks associated with R&D claims.
Implications and Opportunities for Accountants
Failure to provide comprehensive evidence of the research and development intricacies, technological baselines, and significant scientific or technological advancements may result in claim rejection by HMRC. In such cases, HMRC holds the power to investigate previous claims by the company, potentially leading to tax repayment and penalties. This can significantly impact the cash flow of businesses undergoing investigations.
Furthermore, each claim must receive sign-off from a designated officer of the claimant company, placing them under scrutiny in the event of an enquiry. Accountants recommending third-party advisers who fail to defend clients during an HMRC investigation expose their clients to additional risk.
Accountants must act swiftly to protect themselves and their clients from the potential consequences of an HMRC investigation. Seeking expert and reputable support is vital, especially for claims made within the last five years that may not withstand HMRC scrutiny. Additionally, proactive accountants who can provide robust advisory services, including R&D claims expertise, will gain a competitive edge, capturing new revenue opportunities and retaining clients.
Conclusion
The surge in HMRC R&D tax credit investigations demands immediate action from UK accountants. To protect clients and themselves, accountants must ensure that R&D claims are robust, well-documented, and compliant with HMRC regulations. Failure to do so poses unnecessary risks, financial loss, and reputational damage.
The proactive identification of tax relief opportunities, coupled with expert support, empowers accountants to deliver value-added services, distinguish themselves in the market, and secure their clients’ trust and loyalty. As the HMRC’s focus on R&D claims intensifies, accountants must navigate these challenges while protecting their clients’ interests and financial well-being
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