Keep Calm and Carry on Through the Reforms to R&D Tax
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The recent reform of R&D tax legislation has sparked a lot of discussion in the industry, with some R&D tax advisors expressing concerns about HMRC’s increased scrutiny and efforts to combat fraud. However, this new era of stricter enforcement could have positive outcomes for the market, including greater accountability and quality of R&D tax claims.
As some advisors exit the market, there are opportunities for accountants to expand their services and provide more comprehensive client support. We’ll give our perspective on how accountants can remain focused on supporting their clients and providing valuable R&D tax advice.
Shaken not Stirred
It’s important to note that the additional scrutiny from HMRC is necessary to eradicate the malpractice that has occurred in the R&D tax sector for years. While a few rogue advisors have pushed the boundaries of the scheme, failed to provide transparency, and given the market a bad name, most accountants recognise the importance of providing a genuine and compliant R&D tax service to eligible businesses.
Rather than shying away from R&D tax, it’s now more important than ever to provide support to clients who genuinely deserve to access this vital financial resource. As specialist R&D tax providers pull out of the SME market due to the reduction in tax rates and change in HMRC behaviour to tackle fraud, clients are likely to turn to accountants for support instead. Accountants have an opportunity therefore to create a competitive advantage by expanding or creating a dedicated in-house service that includes R&D tax advice.
While the escalation in HMRC activity can be unsettling, it shouldn’t be a reason to step away from providing this service to clients. By continuing to offer R&D tax services, accountants can protect existing client relationships and attract new business, all while ensuring that genuine clients with valid claims receive the financial support they deserve.
When it comes to delivering a full client service that includes R&D tax, building the necessary skills is just the first step. Accountants also need to create a service that is robust, cost-effective, and—critically—rigorous to ensure claims consistently meet HMRC’s requirements.
One key aspect of this is developing a good understanding of HMRC’s evolving guidelines, and creating and implementing robust processes for screening clients and risk-assessing claims. By assessing client eligibility swiftly and effectively, accountants can demonstrate their commitment to delivering a full range of advisory services, while uncovering hot clients to target and avoiding potential disappointment with work that’s unlikely to qualify for tax relief.
Several of HMRC’s recent changes to the scheme, for example, the introduction of the new Additional Information form, will have an impact on delivery costs as they add further complexity to manual processes. Moving to structured, software-based processes reduces the risk of errors, streamlines the claims process and creates a scalable model that can accommodate increasing client demand. Automation also eliminates time-consuming aspects of the claims process, freeing up accountants to collaborate more effectively with clients to fully understand the scope and relevance of any R&D activity.
Accessing Expert Insight
It is not, however, necessary for accountants to build up these tools in-house. Using an end-to-end R&D tax software solution supported by specialist services to prepare and validate claims helps accountants stay up-to-date with the latest criteria, while providing a structure for assessing the validity of claims and collaborating with clients to collate all the required data. Such a service should also provide access to an expert-led advice line that offers additional support as well as a community of peers who can help build confidence and understanding. Even long-standing R&D tax service providers can benefit from this support, ensuring that claims are kept compliant within an ever-changing HMRC environment and helping reduce the risk of nudge letters and enquiries.
An end-to-end R&D tax software solution that includes an ‘Enquiry Support Service’ will further provide additional reassurance if HMRC does raise an inquiry. In addition to giving the accountant confidence to defend a claim and minimising the time-consuming full enquiry process, an end-to-end R&D tax software solution will ensure the accountant knows how best to respond to HMRC.
While HMRC’s more rigorous approach to R&D tax relief is likely to continue, it is expected by the industry that the current level of HMRC activity will settle down over the next six months to a more stable state. There will be fewer nudge letters and fewer claims being challenged. In part, this will be as a result of the worst offenders backing away and the most questionable claims having been addressed. But the adoption by accountants of robust, repeatable processes based on software and good support would also improve the quality of claims being made, minimising potential issues for HMRC to challenge.
Ultimately, R&D tax relief is still an important part of the overall service to clients. It still represents a significant tax benefit for clients, especially during the current economic climate. Companies that are innovative and are undertaking legitimate R&D should be accessing and gaining benefits from the scheme.
For accountants, the changes should not be a deterrent—quite the opposite. The removal of bad apples from the R&D tax world is to be welcomed. It reduces the risk of clients receiving bad advice and opens the door for the introduction or scaling up of a full-service portfolio that meets client needs and further enhances client engagement. The key is to build understanding, confidence and the robust claims process model that allows the delivery of R&D tax claims in a repeatable, consistent and cost-effective manner.