R&D claims – Has this become the HMRC ‘Big Heist’?
At RPGCC we love making R&D claims on behalf of our clients – it’s a great way of getting to know a business and we like work that brings real benefits to a company.
However, recently we have seen, first-hand, and heard about behaviour from HMRC which we believe is penalising many companies who have made R&D claims in good faith and this is now discouraging companies from making R&D claims which will ultimately impact investment decisions.
We have great sympathy for the companies impacted and we are doing our best to support them as far as we can, but we too are frustrated by the process and we thought that some might appreciate our personal view of the situation. This post comes with a disclaimer! As a firm we treat every claim on an individual case by case basis, but we really felt the need to vent……..
Since R&D tax credits were introduced they have worked as an incentive for companies to invest in innovative products. In many cases the credits have been a necessary part of the funding, so necessary for the company but also helping the economy.
However, with limited governance in place HMRC allowed vast number of fraudulent R&D claims to be made. In line with most accountancy firms and taxpayers in general we are relieved that HMRC are finally picking this up, but having lost large sums of government funds they are now trying to recover it in a way that is penalising large number of companies who have invested in technology, and had claimed R&D tax credits in good faith.
HMRC are now trying to make up the losses that arose from their previous lack of control over R&D claims by raising a high volume of enquiries, with the obvious intention of treating as many of these as possible / all, as not eligible for R&D and either refusing to process the claims, or requesting funds back from the companies, even when genuine claims have been made.
We obviously don’t have access to the procedural manual or training carried out in the Indy & Small Business Compliance (ISBC) Unit who is responsible for this initiative, but from observation and anecdotal evidence we expect them to generally follow a standard procedure which might look something like this:
• An enquiry will be sent out with a list of standard questions, often with no evidence that any of the Project Reports submitted have been reviewed, otherwise many of the questions would not be required.
• Despite responding to the questions raised in detail to make sure the R&D is even more evident, the next HMRC response will be very long and consist mainly of paragraphs cut and pasted from the HMRC Guidance. Often the paragraphs supplied will irrelevant or taken out of context and sweeping generalisations are made such as – you employed competent professionals who would have know what they were doing so it couldn’t have been R&D / there are already on-line retail systems in existence so a new one couldn’t involve R&D.
• Further time and resources are then spent trying to rationalise /respond to whatever has been contained in the latest letter and even more information is provided . No matter what information is provided, HMRC will then respond for a final time, quoting even more paragraphs from their guidance and refusing to accept that there is any R&D included in the claim even where there are a number of projects.
• At this point you can request an independent review by someone from HMRC who has not previously been involved in the enquiry process, although as no names are ever provided from the ISBC unit we need to take their word for this. At this point HMRC provide their View of the Enquiry which we assume is written by a more experience member of the unit as it will contain points relevant to the specific project, which is totally against their code of conduct which means requests for information are made as early as possible in the enquiry. We haven’t heard the results of sufficient outcomes from this process to make any general assumptions, but we hope that the detailed information that has been supplied during the claim and the enquiry will finally be utilised at this point.
• The next stage is a formal appeal which is generally an expensive drawn out process. Before many companies have to go through this process we hope that ISBC will have been held to account for not dealing fairly or in line with their own guidance on enquiries and improved their process.
We are happy to help any company with their R&D claims or enquiry, and we are happy to accompany you to face the general ‘ISBC says NO’. We believe, and live in hope, that sense will eventually prevail at HMRC and they will be forced to deal with enquiries fairly. As long as we can provide all the information necessary then we would continue to aim to close any enquiry or keep it going long enough for HMRC to recognise the injustice that is currently in place.
ISBC doesn’t sign any of their letters by name and only the central admin number is provided where you will find someone who has no authority and limited knowledge, but who may be able to find e-mails or letters that you have sent in.
We know no-one at the R&D Claims Unit, so we have built this diary from imagination and created a week in the life of a fictitious Hermione ………..
A week in the life of Hermione in the Indy & Small Business Compliance Unit (ISBC) R&D Unit @ HMRC
Monday
My name is Hermione and I have just been transferred into the Indy & Small Business Compliance Unit (ISBC) R&D Unit at HMRC from the admin pool, where I was known for my skills in cutting and pasting and getting letters out fast.
This morning I was trained in how to identify R&D projects which didn’t fit with the companies SIC code and given a daily target of selecting 10 projects.
Working from home and didn’t know what to do next so managed to get two loads of washing done and made a lasagna before finishing at 4.00.
Tuesday
Logged on bright and early at 8 and waited for my supervisor to contact me at 10.00 when they started, who told me to pick another 10 projects. I then had to send out standard letters to each of the ten companies I had picked yesterday, but had to make sure that each one was slightly different. Each letter contained a list of points and I was really excited as I got to choose from a number of options for each point and could randomly leave some out and include others if I thought they would be good. Worked so hard I almost forgot my lunch break, and in the afternoon I managed to select the next 10 projects in time to hoover the flat before finishing.
Wednesday
Had to go into the office today and got there by 8 which involved a really early start so glad that I only have to go in one day a week. Met some other new people in the unit and had a mornings training on the HMRC R&D Guidance, which was quite long, but the office was nice and quiet as they don’t like phone calls disturbing us so it was easier to concentrate. It was explained that projects that were eligible for R&D had to comply with all of these guidelines, but that none of the projects we would be dealing with were likely to be eligible so we had to provide the relevant points from the guidance which would explain to the companies why they weren’t eligible. We were each given 5 letters to practice on and I managed to draft all of mine before I left at 4 as I am so experience on letters, and it was great to feel so helpful so didn’t mind the journey home.
Thursday
Was a bit tired after the busy day yesterday, but managed to select another 10 claims and sent out the standard enquiry letters before putting on a washing then having lunch.
In the afternoon I drafted another 5 letters to companies which had not accepted our decision that the claims were not eligible and again felt good to explain why this was. I made sure that I didn’t always select the same paragraphs, and also included other points which we had been given which were not in the guidance, but we had been told would be useful to include.
Even although it was nearly 3 I called my supervisor to let them know I had finished my allocated work for that day, but no-one answered so I got a bit of weeding done.
Friday
Thank goodness the week is over – it’s very hard getting used to a new department, and not sure how long I will be here but there seems to be no end to the letters we have to write. It would be so much easier if companies just accepted that they are not eligible for R&D when we first write, but we have been told that we need to make it seem like a dialogue and that we read the paperwork the companies send in.
My supervisor called and said I was being really productive and they were going to start giving me more letters to write, but make sure I don’t put my name on any of them as it was too difficult to keep allocating responses to the same people. Hopefully there won’t be too many more today as I don’t want to end up working till 4 on a Friday, but I always try to meet my targets. Looking forward to the weekend.
Just to reiterate, we do not know Hermione at HMRC neither do we know her working hours, her love of gardening and lasagna or whether she has a flat or a house, all we do know is the HMRC are dealing with this in a way that is not particularly helpful to businesses and it is very frustrating for us as qualified tax professionals. If anyone from HMRC is reading this and they want to get in touch, please give us a call!
This post has been written by Anne Hutchison. Anne is a tax professional with many years of Corporate Tax experience and has been specialising in R&D claims for many years. If you would like to speak to Anne, or indeed any member of our tax team regarding R&D, contact us on 020 7870 9050 or email us at hello@rpgcc.co.uk
