Lack of R&D tax claim knowledge causing challenges for accountants

By Mike Dean, Managing Director of WhisperClaims

Over the past two years, the UK Government’s R&D tax scheme has undergone significant changes.

These changes are part of HMRC’s effort to crack down on fraud and error within the sector.

In 2024, reports indicated that nearly 20 per cent of claims were either challenged or declined, when not long before this period, the sector experienced an enquiry rate of only around one per cent, per year.

Before these recent changes, the scheme suffered from an extended period of poor oversight.

With the rise in ‘specialist consultants’ and the disappearance of dedicated R&D units (due to austerity measures) the sector became a breeding ground for bad actors and bad behaviour crept in.

These consultants were often neither accountants nor tax specialists, yet they persuaded many SMEs that their expertise was essential for claiming R&D tax relief.

Over the years they charged around 30 per cent of the benefit in fees and as these contingent fees became the norm poor practices proliferated.

This led to claims being artificially inflated and sectors not traditionally associated with R&D increasingly targeted.

The culmination of the above has resulted in two main outcomes: a) the current state of heightened scrutiny and regulation and b) a lingering sense within accountancy firms that they lack the necessary guidance and support to successfully navigate R&D tax claims both for their clients and within the profession itself.

What knowledge are accountants lacking about R&D claims?

With many firms fearing that they do not have the expertise or resources to maintain a competitive R&D tax relief claim service – whether this is just a perception or the reality – one of the most common challenges for anyone operating in this space is understanding the complex criteria for R&D tax relief.

This actual or perceived lack of knowledge is only partly the reason that challenges are up.

Less scrupulous advisors who have knowingly been providing inaccurate advice and even claiming to specialise in sectors that almost certainly do not meet HMRC’s criteria (such as care homes and nurseries) have contributed to the number of failed claims and HMRC enquiries.

HMRC guidelines are intricate and difficult to interpret, so to be sure their clients qualify for relief accountants need to possess a thorough understanding of the legislation to be able to guide their clients on what activities do and do not qualify.

Although not widely promoted, HMRC released a helpful resource late last year called Guidance for Compliance (GfC3).

This guidance aims to help avoid common errors when claiming R&D tax credits, boosting the chances of a successful application and ensuring HMRC are provided with the necessary information.

It also talks about the importance of keeping records and the role of the competent professional.

What role have businesses played?

Despite the potential benefits, there remains a lack of awareness among businesses regarding their eligibility for R&D tax relief.

So, if a company doesn’t even realise their activities qualify for relief, then they may not be prepared to hand over the relevant information accountants need to submit a claim.

With what has felt like continuous updates to the legislation, accountants are expected to stay informed about these changes to provide up-to-date advice to their clients.

However, keeping pace with regulatory changes while managing day-to-day client demands can be a significant challenge, particularly for smaller accounting firms with limited resources.

Failure to meet these compliance obligations can result in delays in processing claims or even penalties for non-compliance.

It is for this reason that some firms have chosen to pull out of the market despite the incredible opportunities on offer for their clients. The result? Eligible businesses miss out or accountants lose out to their competitors who can and are willing to deliver a service.

How can accountancy firms manage these challenges?

With firms choosing to leave the sector and more examples of larger consultancies shutting up shop, there has never been a more important time for accountants to prepare to service customers who will no doubt be turning to them for help to access this valuable benefit.

More and more firms are choosing to adopt SaaS technology to overcome the structural and behavioural challenges presented by HMRC.

Empowered by the innovative technology and comprehensive support offered by WhisperClaims, accountants are now freed from the need to hire specialised professionals and assemble a new team for the initial preparation of R&D tax claims or to expand existing operations.

Technology has opened the door for them to smoothly transition into the R&D tax arena enabling them to provide a competitive and efficient service.

If you’d like to know more about how our services can benefit your firm, please contact us today.