Who should advise on Research and Development (R&D) tax claims?
Charlotte Barbour suggests that if more government money is to be channelled via R&D tax relief, as proposed in the recent budget, then further action is required in relation to who can advise on such tax relief claims.
In the Budget on 27 October, the Chancellor outlined his desire for greater investment in innovation and research. To do this, further government funding will be made available by way of the existing R&D tax reliefs. As stated in the ‘red book’, ‘The UK tax system provides very generous support to encourage companies to conduct R&D activity, worth 0.25% of GDP in 2018 compared to an OECD average of 0.1% of GDP’.
The Budget proposals
The Budget proposes two changes to R&D tax relief with a view to encouraging additional investment in research and development in the UK. One change is to extend the definition of qualifying R&D to include cloud and data services; the other is to restrict investment to R&D conducted within the UK.
Advising on R&D tax relief claims
At ICAS, we receive considerable feedback from our members, expressing concerns about the activities of some R&D claims ‘specialists’ who offer to make R&D claims for clients, in some cases where it does not appear that R&D within the meaning of the legislation is taking place. Some of these advisers pursue aggressive claims (often with fees based on a percentage of the claim). The proposals in the Budget to extend the eligible qualifying expenditure, may well intensify the problem by encouraging more claims.
These aggressive R&D claims are at best questionable. There are two aspects to preventing such claims. First, there needs to be additional HMRC compliance activity so that more of the dubious claims are stopped and advisers are deterred from submitting them because there is a better chance that they will be picked up.
At the same time, the ability to give advice or make claims should be restricted to those who meet the standards that apply to tax advisory work set out in the tax professionals guidance ‘Professional Conduct in Relation to Taxation’. The ICAS Tax Board has noted that, in its view, R&D firms (whether claims service or advisory) are giving tax advice – they are advising on how much R&D to claim in accordance with tax law.
Tax advice should be provided by those qualified to do so
It is currently the case that anyone may advise on tax – it is not restricted. Addressing the issue of who is permitted to give tax advice is part of the work that HMRC and the government have been conducting into ‘raising standards’ in the tax advice market. However, it may be that certain niche areas of tax advice, such as R&D claims services, should be used as the basis of a test scheme for regulation, particularly if the Budget measure encourages additional investment in R&D and generates more claims.
And in the meanwhile, those companies which claim tax relief on their R&D expenditure may wish to be mindful of the guidance offered to the tax professionals of the seven main tax professional bodies – it can be found in Professional Conduct in Relation to Taxation topical guidance on R&D. ICAS Members will assist their clients in paying the right amount of tax at the right time.