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Blog: The cost of bad advice and poor claims

Between 2019-2020 the Research and Development (R&D) tax relief scheme cost the government £4.4bn in SME pay-outs alone, and that figure is rising every year.

Unfortunately, as awareness and the use of the scheme increase, so does fraud.

In that same period, the estimated value of inaccurate claims was more than £300m, most of which was claimed by companies specifically set up to collect relief having never undertaken any R&D in the first place.

Because you don’t need any specific accreditation or qualifications to file an R&D claim, a number of ’boutique’ or ‘specialist’ advisors are unregulated by professional industry bodies like The Association of Taxation Technicians (ATT).

The R&D tax relief scheme is complex, and while most advisors do give good advice and file quality claims, some don’t – with serious consequences.

To address this systematic abuse, two consultations on the scheme were completed, and as a result, a cap was put on the amount companies could claim in any one year (three times the company’s total PAYE and NICs liability for that year). After some delays, this cap came into effect in April 2021.

Outside of deliberate fraud, there are also growing concerns about the number of poor-quality claims being received by HMRC from unqualified advisors.

A poor-quality claim can lead to a full HMRC investigation into company finances – either before or after pay-out.

In some circumstances, HMRC may request unqualified funds be returned, and if the claim is found to be deliberately fraudulent, criminal charges and jail terms can be sought.

In November 2020 three men were jailed for fraudulently claiming £29.5m of R&D tax relief against a non-existent spend of £137m.

These men tried to extract an astronomical sum of money by claiming tax relief from a scheme designed to help legitimate companies do work that seeks to make advances in science and technology.

This wasn’t research and development, it was out and out fraud. HMRC will continue to create a level playing field for law abiding businesses by rooting out the minority who seek to abuse these schemes, as this result clearly shows.

Kath Doyle Deputy Director, Fraud Investigation Service, HMRC

This year HMRC bought 100 new investigators on board to spot bogus R&D tax relief claims, so it’s more important than ever before to find a reputable advisor.

Comparing your choices

To help you understand the different advisors on the market we’ve created this handy reference infographic and associated free guide.

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Free advice

We’ve also put together this free guide to help anyone looking for a new or alternative advisor navigate all the options.

Download it today and speak to one of our advisors if you’d like to know more about R&D tax relief and whether you qualify to claim.

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