Whilst many companies have historically been prepared to take a chance on using an accountant to prepare their R&D tax credit claim, the stakes are much higher now that HMRC has substantially stepped up the number of random enquiries it undertakes into R&D claims.
Therefore, it is worth re-evaluating whether this is still a sensible option in 2022.
Last week we looked at this question: Can they provide expert technical “judgement” to help qualify the R&D?.
Our conclusion was that the majority probably couldn’t and the only way to be reasonably confident would be to ask the accountant for the CV or profile of the technologist that will be specifically handling the claim. Failing that you should request their full name in order to check their credentials on LinkedIn. Key things to look for are PhDs in Computer Science or Engineering, along with several years’ technical experience in the R&D Tax Credit field.
Question 2: How would they handle an HMRC enquiry?
The second key question to ask is how they would go about handling an HMRC enquiry.
For many years, the risk of an HMRC enquiry was very low. With an exceptionally weak HMRC compliance regime in place, few R&D claims were properly examined. Word eventually spread around the accounting profession that completely non-technical accountants could handle R&D claims with very little prospect of any detailed checking by HMRC.
What many accountants are failing to realise is that those days are now over. There is a sea-change in how HMRC is approaching R&D Tax Credit claims which has dramatically increased the number of claims being enquired into.
Most accountants are totally unprepared for this change so it is essential that any prospective R&D claimant asks the accountant what expertise they can deploy in the event of an HMRC enquiry.
HMRC enquiries typically major on whether the projects put forward qualify as genuine R&D. It is essential therefore that a claimant can access the relevant technical expertise to make an effective case to HMRC otherwise the claimant will be left to defend the claim by itself with no help from the accountant.
Before engaging with an accountant on R&D Tax Credits, the claimant should gain a clear understanding of how their accountant would handle an HMRC enquiry.
The two capabilities to look for are:
- Do they have ready access to ex-HMRC Tax inspectors who have deep expertise in how to handle an enquiry? This is important because HMRC has standard procedures that an enquiry will follow and without a good understanding of the HMRC process there is a high chance that the company will not fully understand what is being asked or how to answer the questions effectively.
- Do they have the relevant technology expertise to guide the company through the requirement to prove that they were seeking a genuine advance in science or technology? HMRC is now using its own in-house technology resource to rebut claims on the grounds that R&D is not taking place so it is crucial that claimants are not left to defend these enquiries on their own.
By asking these two simple questions before engaging with an accountant on R&D, companies can avoid a potentially lengthy HMRC enquiry into their R&D claim, along with mitigating the risk of having to repay R&D claims that may even have been paid out, along with penalties and interest.
As always, our strong recommendation is always to use a reputable R&D Tax Credit advisor such as MSC R&D that employs technologists and which has proven expertise in handling HMRC enquiries.
Thanks to Rufus Meakin
MSC R&D Sales Associate and specialist in large R&D Tax Credit claims
