Guest article written by Tim Walsh CTA MBA, Director at RandDTax Ltd
We all know that HMRC have adopted a new approach to handling, dealing with, or processing R&D Tax Credit compliance checks, or enquiries.
The potential reasons why have been covered by other articles and I won’t go over that again here.
No, my purpose today is to give a few of my personal experiences and then give you two courses of possible action.
The title of this article actually refers to a recent letter a client received from the compliance team, and I quote:
“Mr X has over thirty years of experience of working within the industry which is not enough to be regarded as a competent professional (CP) in the field.”
When I first read those words, I was speechless, then angry, then totally bemused.
Does HMRC really believe this to be a fair or reasonable comment? Or, alternatively, is this an unreasonable way to conduct proceedings? (Which could become relevant for claiming costs if, or when, cases are taken to the First Tier Tax Tribunal.)
It seems to me that this begs two questions:
- How many years of experience is enough to be regarded as a Competent Professional in a field?
- How much experience is enough to be a competent HMRC case worker?
Not content with one gross misinterpretation of the guidelines, my client, working in the field of Agricultural science, is attempting to develop processes to increase crop yields, and in the process has broken multiple world crop yield records.
You are probably all ahead of me because yes, you guessed it, the HMRC Compliance team have deemed that this does not represent an advance in science or technology!
The letter to my client also went on to mention that “an appropriate baseline for your project should have been established within the field of Computer science…” and then had the audacity to charge penalties for “carelessness”!
We all have numerous examples of where the HMRC Compliance team has cut and pasted words from other cases into our clients’ letters however, more disturbing is where they have deliberately misquoted either the information that has been submitted or their own Guidelines.
The Guidelines, as we are often reminded, need to be taken as a whole and it seems that only the parts that would lead to a negative outcome are being quoted or referenced and therefore lead to a false or incorrect interpretation and application of the Guidelines.
Here are a few more examples:
- Someone cannot be considered to be a Competent Professional if they have no certified qualification in the field – countered by no mention of ‘qualifications’ in CIRD 81300
- Software development does not sit within a recognised field of science or technology – countered by logic
- The methods used to solve the uncertainties cannot be already established – countered by examples D1 and E2 of the BEIS Guidelines.
There is a case for saying the Compliance team are arriving at decisions prematurely, after all, CIRD 80520 states:
“It is important to gather all of the facts and listen to the company’s representations before making a decision”
and
“The enquiry should not be closed until all other points have been settled and all necessary documentation and information has been obtained.”
As enquiries are being closed with outstanding questions, has HMRC changed its approach or its application of its Guidance?
Another example of variance from the Guidance is the Compliance team’s point-blank refusal to attend physical or virtual meetings with the company’s management and technical experts to get a deeper understanding of the nature and complexity of the work undertaken.
However, CIRD 80525 states:
“During the course of an enquiry into an R&D claim, an officer from a specialist R&D Unit will normally make arrangements to discuss the claim with the company’s management and technical experts.”
Don’t get me started about “reasonable care”. I believe the Guidelines state:
“If you took reasonable care to get things right but your return or other documents were still inaccurate, HMRC won’t charge you a penalty”
and
“If you’ve used a tax advisor with the appropriate expertise, HMRC would normally consider this as having taken reasonable care.”
However, this current round of Compliance checks has seen HMRC issuing penalty notices as almost routine procedure and not taking into account the fact that the only issue is a difference of opinion and that the claiming company has used a tax advisor with appropriate expertise.
As the BEIS Guidelines contain significant elements of subjectivity, which tribunals have noted, and have been interpreted differently at different times by different HMRC Inspectors, the aforementioned difference of opinion is not a careless inaccuracy.
Once again this raises the question, has HMRC changed its definition of ‘reasonable care’ or its application of its Guidance?
In February, CIOT and ICAEW representatives attended a workshop with HMRC to discuss operational matters relating to the delivery of R&D, at which concerns were raised over the lack of expertise of those conducting enquiries, their confrontational manner and lack of willingness to engage with the taxpayer to discuss or understand the technical issues.
HMRC did confirm that a new team was using a ‘volume’, formulaic approach and recognised some of the issues that taxpayers were facing.
They also said that training was ongoing however, we don’t seem to be seeing any results of this training, nor any evidence that a suitably qualified R&D Tax Inspector (with basic typing and proof-reading skills) is being involved in cases before closure notices and penalties for carelessness have been issued.
We know there has been change of policy however, the current performance from the Compliance team is either gross incompetence, or worse, it is a deliberate policy to refuse claims until they reach the First Tier Tax Tribunal, where the cost of defending a case is prohibitive, for most, and HMRC wins by default and not by reason.
Either way, I believe HMRC are currently behaving unfairly, unreasonably, irrationally, aggressively, un-characteristically heavy handed or, if this is a deliberate policy – this is acting above the law.
Now, I believe, (or at least I used to believe) we live in a law-abiding country where no one is above the law, in fact, the Magna Carta, signed at Runnymede on this day (as I write this) in June 1215 by King John, placed limits on royal authority and put in writing the principle that the King and his government are not above the law .
I have sent all the questions raised above to be considered for the next RDCF meeting, and I don’t believe I am alone in this – maybe this is part of the ‘unforeseen circumstances’ for postponing the meeting until July!
I have also written to some of HMRC’s R&D Policy leads who are currently contemplating whether there is ‘an issue’ or not.
The way I see it, we have two options: we either let this injustice continue and hope that someday in the future HMRC will see sense (or at least complete the training of their ‘freshman’ class) or we can decide “enough is enough” and do something about it.
I was born in October and, whether you believe in star signs or not, I believe I’m a fairly typical Libran.
I like balance and fairness, and what I am witnessing at the moment is gross unfairness, so I’m on the side of doing something.
So, this raises the question “what can we do?”
• We need support, advisers, SMEs etc.
• We need a well-coordinated plan of action.
• We need to make noise – lots of noise.
• We need publicity.
• We need all of our 650 MPs to know about the situation.
• HMRC needs to know that this will not be tolerated quietly any longer.
If you hold a similar view and this resonates with you, or indeed (as I am open minded) an opposing view, I would love to hear from you.
Content by Rufus Meakin (R&D Tax Credit Insider Newsletter)
Find the full article here
