This is the final article in my three-part R&D Tax Credit Insider series on how the UK’s world-leading R&D incentive was brought to the brink by hype, political complacency and industry inaction.
Part three: The fight to restore credibility
It’s a pretty good bet that if you put up a sign saying “free money, no questions asked” then it will end badly.
That’s essentially what happened to R&D Tax Credits: a slow-motion car crash that engulfed an advisory industry generating upwards of £1 billion a year in fees by 2021.
There appears to have been a collective breakdown in the R&D advisory community, with some firms seemingly losing all sense of reality.
A major problem was the rise of so-called “claim farms” and “boiler room” sales operations, set up by the more entrepreneurial firms to exploit HMRC’s light-touch oversight and mass-submit inflated or ineligible claims.
These firms used cold-calling and paid social media campaigns to target businesses who could be persuaded to make R&D claims, regardless of actual eligibility.
The R&D Tax Credit “gold rush” period ran from around 2013 to 2021, by which point annual taxpayer losses from non-compliance had surpassed £1 billion.
It was obvious this situation couldn’t continue but it wasn’t until the mainstream media began to take an interest that the true scale of the problem became visible.
The beginning of the end
In 2022, I was contacted by James Hurley, then Enterprise Editor at The Times newspaper, who had heard rumours of widespread abuse in the R&D scheme. He was looking for particularly egregious examples of unlikely claims that had been submitted and paid out by HMRC.
By this point, I had seen dozens of ineligible claims, but the food and hospitality sectors had always stood out as particularly fertile ground.
The Times article highlighted two examples I had previously flagged:
- The Coach House Inn, Chester – incredibly, this single gastropub had received an R&D Tax Credit payment of £28,000 for the “development of innovative menus… that suits all tastes and needs”.
- The owner of an accountancy firm who had encouraged bars and restaurants to claim R&D Tax Credits and was featured on YouTube saying: “If you’ve employed barmen, waiters, waitresses and chefs, and they’re working on unique propositions, then that counts for R&D”.
These examples were by no means isolated. This type of messaging was commonplace in the advisory space during the gold rush days of R&D Tax Credits.
As I wrote in my last article, one prominent R&D advisor, Catax, had suggested that nearly 2 million SMEs were eligible to claim. When a House of Lords sub-committee requested an explanation, Catax maintained that its purpose was merely to “raise awareness” of the scheme rather than a serious suggestion that 57% of all UK SMEs should be making R&D claims.
It was a feeble excuse, but typical of the time. R&D firms were in a landgrab for new claimants, and marketing was increasingly based around the idea that almost anyone could qualify and that R&D Tax Credits weren’t just for “men in white lab coats”.
During the pandemic, Covid became a convenient pretext for encouraging almost any business to consider an R&D claim, regardless of whether any qualifying activity had taken place. Financial hardship was routinely used to justify exploring the scheme, as if economic pressure alone somehow expanded the definition of eligibility.
What’s particularly interesting is how advisors responded when challenged about these statements.
Catax had publicly claimed the Treasury was sitting on an £84 billion pot of unclaimed R&D Tax Credits but later backpedalled saying it was merely promotional messaging. The accountancy firm that had declared bars were “categorically” eligible later insisted: “We don’t consider that R&D relief is applicable purely for amending a cocktail menu” and that claims only qualify if they meet the criteria.
On paper, these clarifications might have sounded plausible. In practice, they only deepened the sense that the scheme was rapidly losing credibility.
Among many reputable advisors, frustration was building. The feeling that the R&D Tax Credit regime was being steadily undermined, while HMRC remained asleep at the wheel, was becoming impossible to ignore.
The illusion begins to unravel
By 2022, even the Treasury was finding it difficult to maintain the fiction that R&D reliefs were a well-run, value-for-money incentive that was, as Rishi Sunak had claimed in his Autumn 2021 Budget speech, “making this country a science and technology superpower”.
Stung by the adverse publicity following The Times article in 2022, the Treasury had become increasingly concerned that the R&D scheme was now wildly out of control. Drastic action to curb the excesses had become inevitable, and it was only a matter of time.
I have written dozens of articles over the years on this topic but looking back, two things stand out.
Firstly, it is now clear that ministers had been aware of the scale of the R&D Tax Credit problem for several years, perhaps even as far back as 2016. It is likely that the parliamentary chaos around Brexit, followed by the pandemic, meant the Treasury took its eye off the ball until Sunak was forced to act under the glare of national media attention.
The fact that it wasn’t until his March 2022 Budget speech that the Chancellor finally admitted that “something is not working” in terms of R&D Tax Credits is astonishing.
Secondly, Jim Harra, Chief Executive of HMRC, revealed to a committee of MPs in October 2023 that the department had underestimated the level of fraud and error in previous years because it “did not have the best method of measuring it”.
Harra went on to describe the R&D scheme as a “honeypot for people for whom it is not intended” and that “an industry has grown up around tax advisors helping people to make claims that are not compliant”.
But while HMRC and the Treasury were finally starting to confront the scale of the problem, many in the industry still seemed reluctant to speak out.
The “Happy Clappers”
“Happy Clappers” is my term for those individuals and R&D firms who consistently tried to brush problems with the R&D regime under the carpet.
There’s little doubt the widespread abuse of the R&D scheme was enabled, at least indirectly, by the Happy Clappers.
To paraphrase John Cleese’s highly strung hotel owner in the famous Fawlty Towers episode “The Germans“, they aways seemed to be saying:
“Don’t mention the fraud!”
The Happy Clappers were always against anyone publishing negative stories about the way that the R&D scheme was being abused.
With the timing of their own growth targets and exit plans finely balanced, the last thing many firms needed was for anyone to start lifting the lid on the unsavoury aspects of the industry, even if their own claims were perfectly valid.
Many firms shamefully ordered their staff not to engage with my articles on LinkedIn for fear of associating themselves with anything that might rock the boat.
Some had effectively become collaborators, hitched to the R&D Tax Credit gravy train and in too deep to jump off, even as the risks mounted.
A few even contacted me privately, asking if I could “be more positive” and not focus so much on the growing issues.
In many ways, by trying to brush the problems under the carpet, the Happy Clappers are almost as complicit as those who were actively pushing the boundaries.
Their silence and inaction allowed the rot to continue unchecked, thereby making the inevitable HMRC crackdown even worse than it might have been had things been nipped in the bud earlier.
The damage wasn’t just down to the rogue operators. It was made worse by those who stayed silent, even when they knew full well what was going on.
The advisor community begins to act
Not everyone stayed quiet. A handful of advisors had already begun publicly calling out what they saw as serious failings within the industry.
Even before the pandemic, many R&D advisors had become alarmed at deteriorating standards and what appeared to be thousands of ineligible claims being waved through by HMRC.
In a prescient article for Taxation magazine published in 2020, John Moxon, founder of R&D consultancy firm YesTax, expressed what many in the industry were already feeling. He wrote at the time:
“Over the last few years, I’ve become increasingly disillusioned by the standard of advice that many companies across the UK are receiving. Until recently, I’ve chosen to be tight-lipped about practices within the sector, preferring to concentrate on what YesTax offered rather than what others were doing. However, the situation has deteriorated to such an extent that the role of an R&D tax adviser is being tainted.
“Poor advice, outlandish interpretations of legislation and aggressive marketing based on unproven and ill-founded claims are now commonplace. In the eyes of many, we’re the double glazing salespeople of the tax and accounting sector.
“The ‘Wild West’ is how I’ve seen the sector described. I can’t think of a better term”.
By the time I established my R&D Tax Credit Insider newsletter in early 2022, it was an open secret that the R&D advisory industry was increasingly marked by boundary-pushing and even outright fraud.
I began writing extensively about the problems with the scheme, and along with others, shone a light on some of the practices that had taken hold.
One article I published documented how the now-defunct R&D firm RDI Solutions was seriously undermining the R&D scheme through aggressive marketing tactics and highly dubious R&D claim preparation methodologies.
My investigation revealed that RDI Solutions:
- Advertised ambiguous “HMRC cash rebates” on Facebook without mentioning R&D Tax Credits by name.
- Targeted random businesses with vague promises that routine product changes or tweaks made them “very likely” to qualify for R&D relief.
- Quoted estimated claim values based solely on company accounts, without asking about any actual R&D.
- Promised to “find” R&D projects to match the estimated numbers.
- Charged clients 35% contingency fees
The feedback and messages of support I received following my article’s publication revealed a groundswell of concern amongst many in the R&D advisor community.
Things then began to unravel rapidly.
The founder of R&D Consulting, Paul Rosser, picks up the story:
“By the start of 2024, the wheels had well and truly come off the R&D tax relief gravy train.
“The effects of HMRC’s increased compliance activity were being felt right across the industry.
“The hardest hit were the disreputable advisors who had made a killing by submitting invalid R&D claims during the years when HMRC barely checked anything.
“Many of the smaller firms had already shut up shop by the time we heard in March that RDI Solutions, which was only formed in 2019, had closed down.
“RDI had claimed to have secured £200 million in government funding through tax incentive schemes in just over four years, so this was one of the first public signs that HMRC’s crackdown on dishonest advisors was starting to work. It came at a cost though, with plenty of collateral damage being caused in the process.
“Then in September came the news that Green Jellyfish, another firm set up in 2019, had been raided by HMRC on suspicion of tax fraud and money laundering.
“This was a very welcome move, because it showed that HMRC wasn’t going to let these firms simply wind themselves up and disappear with their ill-gotten gains. If a firm had been involved in tax fraud, there was now a real risk of being raided and facing criminal charges.
“In October 2024, a very strange court case came to light. It involved a client of the R&D advisor ZLX, who refused to let them submit an obviously invalid claim. ZLX sued the client over it and lost.
“As often happens when people highlight questionable behaviour in the R&D space, anyone who wrote about the case online was contacted by a solicitor acting for ZLX. The firm, Jones Whyte, issued legal threats demanding that posts be taken down and full apologies issued.
“We don’t know how often tactics like this have been used by bad actors in the industry, but I’ve personally seen several of these letters. It seems to be a fairly common way to keep clients, and potential clients, believing that the advisor in question is reputable.”
It’s thanks to people like Paul taking selfless action and indeed taking risks and facing intimidation from vested interests, that the tide has finally begun to turn and hopefully the much-diminished scheme we have to today will regain the credibility it once had.
R&D Tax Credit Insider: three years on
It’s now more than three years since I published the very first edition of the R&D Tax Credit Insider on LinkedIn.
Looking back, it feels incredibly presumptuous that I even called it the R&D Tax Credit Insider. I can’t quite believe I had the nerve.
I don’t work for HMRC. I don’t have any special access or inside track on Treasury thinking. There are plenty of people out there who are far more technically qualified than me.
What I did see, though, was a gap. Nobody in the R&D advisory world seemed willing to take a step back and ask the most basic question: is this scheme actually working in the best interests of the UK economy?
Having worked in the innovation grant world since 2001, and in R&D Tax Credits since 2005, it struck me as blindingly obvious that the status quo couldn’t last forever.
What finally galvanised me into action was Catax’s now infamous “£84 billion pot of unclaimed R&D Tax Credits” survey, a completely bogus statistic that was being repeated as fact across national media.
The numbers were ludicrous.
I never really set out to write about the minutiae of R&D legislation. Plenty of others already do that, and do it well. My focus was something else: the advisor market. The culture. The conduct. The marketing. The messaging. The way the scheme was being presented to the outside world.
I also wanted to give people outside the industry a glimpse behind the marketing spin. The constant “90% of eligible companies are missing out” nonsense never told the full story and no one seemed to be asking how this all looked from HMRC’s or the Treasury’s perspective.
It was always about “sticking up for hard-pressed innovators,” but never “is this actually working for the UK?”
Three years on, I’m proud of the small impact the R&D Tax Credit Insider has had. If even one firm changed how they market the scheme because of something I or one of my guest writers flagged, I’m happy about that.
I know HMRC read it too, and hopefully they’ve not been too offended. Any criticism has always been offered in a constructive spirit.
So I just want to finish this 3-part series by saying thank you.
To the guest contributors who’ve shared their insights across 78 editions. To everyone who’s liked, commented or shared. And most of all, to the (nearly) 4,000 subscribers and thousands of other readers who’ve helped to make the world of R&D Tax Credits such a fascinating place.
Article written by Rufus Meakin
Rufus Meakin works with tech companies to help ensure their R&D Tax Credit claims are accurate and defendable.
If you would like to discuss any aspect of your R&D Tax Credit claim, then please feel free to book an exploratory call here: https://calendly.com/rufusmeakin-uk/r-d-tax-credits-exploratory-call
