Market awareness and competition has brought an end to the days of a ‘Lock-In’ R&D Tax Credit contract – today, a typical contract term from an R&D specialist advisor is 3 years with anything longer generally deemed to be excessive.
However, deprived of the ability to enforce lengthy R&D Tax Credit contract terms, some advisors have turned to a more fear-based form of client retention strategy.
This threat is linked to an increase in the HMRC enquiry rate on R&D claims and has resulted in some advisors warning clients that, if they switch provider, they will not support an HMRC investigation for any previously filed claims that they have handled.
As an example, one R&D advisor has a disclaimer on its R&D Tax Credit contract documentation which states that if one of its clients later submits a claim through another provider, and that this results in a re-examination of any earlier claims by HMRC, then it will not be liable for any losses that may be incurred.
The intention is clearly to create sufficient unease that the client will choose to play safe and stick with the incumbent advisor for future claims.
What they fail to point out to their client is that there are strict time limits in which HMRC can go back to raise an enquiry.
Within the statutory time limit, HMRC has the right to enquire into a return without reason or cause. However, this normally has to be within 12 months of the date on which the R&D claim was filed (although it can be slightly longer in the event of filing a claim through an amended tax return).
In order to go back further than the statutory time limit, HMRC has to show that it has made a “Discovery”.
To make a Discovery assessment, an inspector must have satisfied themselves that a return is incorrect, as well as meeting one of the following conditions:
- The return is incorrect due to careless or deliberate conduct by the company or
- HMRC could not reasonably have been aware that it was incorrect based on the return and other documents supplied with it.
If a claim is reliable and accurate, and there has been a proper and adequate disclosure of the assumptions and information, then HMRC would have great difficulty in being able to raise a Discovery assessment.
To be clear, HMRC cannot just go on fishing expeditions on previously filed claims.
What some R&D advisors appear to be implying is that an enquiry into a new advisor’s claim might result in a Discovery assessment into their own previous claim. However, as outlined above, there must be a legitimate reason for HMRC to issue a Discovery assessment.
There can only be two possible reasons why an R&D advisor would be worried about a re-examination of a previous claim.
The first is that that the advisor believes that its claim may not be fully defensible and that another provider may adopt more reliable standards and be less aggressive in trying to maximise the claim or shield parts of it from HMRC scrutiny.
Whilst worrying, this should not be a reason for a claimant to remain with an advisor.
If by switching provider, the original advisor’s claim was found to be unreliable, then that is something for which the advisor that handled the previous claim should be accountable.
If on the other hand an R&D claim has been correctly prepared, then the advisor should have no fear about HMRC looking back and shouldn’t be concerned about contract disclaimers disavowing them of any responsibility.
Assuming that the original advisor is a reputable firm with expert people, quality processes and reliable outputs, then the only other explanation is scaremongering the client in order to retain the business.
A recent variation on this fear-based approach to client retention is where advisors warn their clients that by switching provider, HMRC will somehow be alerted to something potentially suspicious. This is an attempt to make clients believe that a “safety first” approach is their best bet – why alert HMRC to something that you don’t need to?
Scare tactics such as these are unnecessary, especially as being the incumbent R&D advisor conveys some in-built advantages:
- They already know their client’s business and its technology
- The have a relationship and a rapport with the people
- They (presumably) have a track record of success
- The client knows that things “just work”
The issue is that the R&D advisory market is hyper-competitive with many new entrants having emerged in recent years and providers are understandably trying to protect their core business.
In particular, some self-styled “fintech disruptors” are maintaining that technology can be used to cut corners and reduce the overall cost to the claimant.
Accountancy firms are also becoming more confident in handling R&D claims as they begin to adopt some of the new software platforms that (allegedly) simplify the claims process.
Superficially, these low-cost services can sound attractive to claimants as they seem like they should generate potential savings.
However, an expert R&D advisory firm which employs trained technologists and chartered tax advisors skilled in the field of R&D Tax Credits should always provide a higher quality service than an automated, self-service provider or a general practice accountancy firm.
A professional advisor with high ethical standards should not fear competition so much that they need to scare clients into thinking they won’t be supported in the event of an HRMC enquiry.
Given the large amount of information freely available on the Internet, R&D claimants have never been so educated on how R&D Tax Credits work. Advisors who are anything but completely transparent about how they work will soon get found out.
Thanks to Rufus Meakin – MSC R&D Sales Associate and specialist in large R&D Tax Credit claims; Industry-leading seller of R&D Tax Credits since 2005.
Read the full article here
https://www.linkedin.com/pulse/safe-switch-rd-advisor-rufus-meakin/
