By James Geary, corporate tax partner at Randall & Payne 

R&D tax relief suddenly surfaced in the news and media channels yesterday and it seems to have sparked quite a debate on social media.

The BBC, the Guardian and Punchline-Gloucester.com all came out with articles which appear largely to be based on two-year-old information and seem to present quite a one-sided version of the state of affairs.

There seems to be a conspiracy theory brewing that the government may be driving the sudden unexpected appearance of media articles on the subject, perhaps to pave the way for more cuts or even abolition of the relief.

While I will not speculate on that, it does seem that both sides of the story need to be told here, so we as advisers need to keep talking about these issues and making sure the wider business world (and the public) don't get a one-sided view from the sudden appearance of this really quite old information.

What the articles do say which is true:

• There has been a vast scale of fraud and error in the R&D space in recent years
• The level of fraud and error has dropped off significantly over the last two years

What the articles say which is not entirely accurate:

• The schemes were introduced in 2020 (incorrect - it was 2000)
• An "enhanced" scheme was introduced in April 2023 allowing businesses to pay "even less tax" - in fact, all companies have had their tax relief rates reduced; in reality the enhanced "R&D Intensive Scheme" just enabled certain businesses to have their claim values reduced to a lesser extent than other companies

What is happening in the real world?

• HMRC's volume compliance team have opened around 100,000 enquiries into small and medium sized company claims in the last two years
• Most of these are summarily dismissed as not R&D using template letters and dubious arguments, often involving cursory google searches for something that looked similar
• Many of those are then too small in value to make it cost-effective to go through appeal processes and take the case to tribunal where they genuinely have real R&D going on, meaning business owners are repaying the money and moving on - most likely resulting in their claim being added to the government's statistics for the volume of fraudulent or erroneous claims
• Some of the biggest "claim farms" are now starting to go out of business, which is positive news for the bigger picture, even if their clients are now left in limbo having to repay tax relief that (best case) includes a large fee they can't get back, or (worst case) repay tax relief that they have never actually received in the first place

Two cases from the high-volume compliance team did reach tribunal in recent weeks - one (Get Onbord Ltd) resulted in a sound defeat for HMRC and the judgment was scathing about the processes followed by HMRC and the apparent lack of training for the officers involved.

The other (Tills Plus) went HMRC's way but again there were aspects of the judgment that cast serious questions over the compliance methods being adopted by HMRC. I am hearing from other respectable R&D specialists (and this is also mirrored in our own client base) that the level of new HMRC enquiries seems to be dropping off - suggesting that HMRC are now getting better at targeting the questionable claims from the less scrupulous firms. However, many cases are still ongoing as it typically takes 18-24 months for an enquiry to resolve, and HMRC's attitudes on these open enquiries (at least in the main) does not seem to be relenting.

In October I will be running a workshop session at the PFP Annual conference in Birmingham where there will be an opportunity for accountants and tax advisers to share experiences of the compliance regime adopted by HMRC, as well as a knowledge share of approaches to take where businesses find themselves the subject of one of these investigations. To register interest in this conference please use this link:

https://pfpemail.com/p/5K7D-L4D/taxenquiryconference2024 

James Geary is Randall & Payne's corporate tax partner and volunteers his time for the Chartered Institute of Taxation as well as sitting on their owner-managed business committee which is directly involved with government policy makers to help shape proposed tax policy before it goes live.

He also contributes to various working groups with the CIOT, HMRC and Treasury specifically on R&D tax relief reform and tackling abuse.

Contact James by emailing james.geary@randall-payne.co.uk  or call 01242 776000. Randall-payne.co.uk