With the spotlight now firmly on weeding out fraudulent R&D tax credit claims as HMRC, faced with clear evidence of overclaiming in recent years (c£300m), begin to flex their muscles, is there a danger advisors will now go the opposite way and err on the cautious side?
HMRC have significantly increased their staff during 2020, trebling the size of their R&D Tax credit teams. There are 3 R&D Tax Credit teams currently operating within HMRC which until recently had around 50 staff in total. It is estimated that each inspector could perhaps handle up to 30 enquiries per year, giving a total of 1,500 enquiries per year, which represents around 2% of the total.
With the addition of 100 new inspectors, the capacity will have risen to between 4,000 and 5,000 enquiries per year, which is approaching 7% of the total submissions – a not insignificant percentage.
Compliance
MSC R&D are often asked to review previous claims when we first engage with a client. More often than not, we identify areas of non-compliance. The following are the most common.
- Project activities outside the scope of R&D included
- Expenditure outside the qualifying categories included
- Special rules for connected parties are not applied
- No account is taken of subsidies or notified State aid
- Failure to recognise they are not SME’s
Strong compliance is imperative as any HMRC enquiry protracts the claim process and penalties for inaccuracies can reach 100% of the potential lost revenue.
The fact that MSC R&D have an enviable record when it comes to compliance is not down to luck. Quite the opposite in fact, as we leave no stone unturned in our pursuit of excellence. Our processes and our commitment to quality are the best in the business.
Quality Assurance
From a Quality Assurance perspective, we engage with two ex-HMRC employees to help us with HMRC compliance on a strategic and tactical level:
Gavin Bate is our expert consultant on R&D Tax Credits. Gavin was responsible for the R&D legislation when he was at HMRC and wrote their internal CIRD guidance manual on the subject. He regularly discusses relevant policy and legal issues with HMRC, and is an active member of the R&D Consultative Committee.
We also have an ex-HMRC senior R&D tax inspector who is employed as our internal Quality Assurance officer, providing compliance checks to our claims prior to submission. Every single claim is reviewed by him and he ensures rigorous compliance to HMRC eligibility criteria which helps us maintain our ISO9001:2015 quality standards.
Optimisation
However, this is not at the expense of ensuring each claim is optimised.
We believe that our clients deserve to deal with people of a similar level of experience and expertise, not to be ‘fobbed off’ with the ‘office trainee’ once the deal has been struck. Each team member brings their own specific area of expertise to the MSC R&D proposition and is carefully chosen and fully immersed in the MSC R&D Team Way method of working.
On every project we bring together the appropriate team of leading analysts, each an expert in their field, all highly qualified (including 4 PhDs in Computer Science) and with many years’ relevant and practical industry experience.
Empowered with the latest skills and current industry knowledge, our people have the experience to hit the ground running – making the process more effective and efficient and enjoyable. We drill down and identify all R&D activities – we don’t just rely on the client to define them. Because we understand our clients’ businesses, we know what questions to ask.
Peace of Mind
We consider this investment essential when it comes to delivering the highest quality service to our clients. An investment that cannot be matched by the majority of so-called ‘specialists’.
So, at a time when HMRC are tightening up on their scrutiny of R&D Tax Credit claims, ask your supplier how they manage to get the balance right to ensure you can have peace of mind.
If not satisfied with their answer, then why not contact us.
