The recently released PCRT (Professional Conduct in Relation to Taxation) R&D topical guidance offers useful information about the standards an advisor should meet. It also dispels several myths and misconceptions I have seen operating in the field of R&D Tax credit advice.
Key points from the PCRT R&D Topical Guidance:
(Summary of PCRT in bold and my comments in italics)
- Members of professional bodies who give R&D advice are giving tax advice and are subject to the PCRT.
Tax advice should be undertaken by experienced professionals who follow an ethical code. I have always had a concern that if the correct advice on claims is not given, that HMGov could view these valuable schemes as too easily abused and abandon them. Standards are critical. But in a competitive world, where the easiest approach that brings in the most cash is attractive, this is an ethical challenge. Anyone viewing an R&D claim as a form of tax avoidance is behaving unethically. Asserting R&D claims are easy to make and can be completed in a couple of hours is not taking due care. Ethics matter.
- Advice on R&D tax credits should be specific to a client’s facts and circumstances and any disclosure in support of the claim submitted to fairly represent all relevant facts.
Advisers that make things easy through boiler plated submissions, not asking key questions, and not letting a client see or approve a submission ultimately damage their client’s credibility. In a self-assessment world, they may “get away” with this for a time. But that can only make the impact worse when errors are identified. I am aware of a company that claimed incorrectly for 7 years. When found out they had to return a significant portion of seven years of R&D claims. That hurts!
My other concern in this area is when advisers claim to use other claimants information to make sure you claim the right amount of tax credit, or worse use that information for your R&D supporting narrative. A company is entitled to claim the R&D Tax Credits it is entitled to claim, the company's facts if you like, another company's claim is of no relevance what-so-ever. You cannot argue at enquiry that company Y's claim is right because company X claimed a similar amount. Every company is different and every claim should be constructed on its own merits. To do anything else is completely unethical. I am aware of an online only service claiming to use an algorithm comparing claim levels on other claims to guide your claim. That is completely unethical on multiple levels. If HMRC found out this was being done at enquiry the consequences would be severe. I would further point out that algorithms are about as helpful at putting R&D claims together as they are at assessing exam results! They don't handle specific circumstances and differences. To use another company's information is also a clear breach of the key ethical standards of confidentiality and due care.
- The provision of tax advice requires Money Laundering checks (AML). Firms not making these checks should be reported.
The importance of Money Laundering checks is always a hard sell to clients. They are viewed as “red tape”. Unprofessional advisers do not make them. I would make two points.
- R&D claims are a compliance-based activity. Your adviser showing non-compliance from the outset should be a red flag.
- If your adviser does not run these checks and they engage with a fraudster their credibility can be drawn into question by HMRC. If they advised you so can yours through guilt by association.
- Misleading or inaccurate claims should not be included on websites.
The misleading website claims that annoy me the most are those that claim a special relationship or “approval” from HMRC. No such qualification exists, HMRC are impartial and objective. In a self-assessment world, no R&D claim is ever approved by HMRC, other than the rare circumstance where a company asks for Advanced Assurance (most R&D claims are retrospective). Having an ex HMRC Inspector on staff does not impart “superpowers”. HMRC have a duty to look at each claim based on the facts of the claim and nothing else. Assertions to the contrary are at best sales hyperbole.
- Advisers must maintain their professional knowledge and skill at the required level to ensure that a client (or employer) receives competent professional service.
It is risky to get R&D advice from an adviser without knowledge or experience? Why would you? Caveat emptor (Buyer beware) is a sound principle that should be followed. I once had a pet dog who needed an expensive operation. The local vet recommended a highly experienced surgeon, but also offered at a third of the cost to do the operation himself as he wanted to “get into surgery”. It is best not to be a guinea pig.
- Members of Accounting Accreditation Bodies can submit returns including R&D claims they have not prepared providing specific conditions are met.
We work with clients’ accountants who generally file the R&D claim. We think the continuity of tax records is important. We provide them all that is required as per the PCRT R&D Guidance.
- Members should be in a position to defend and explain the approach taken in R&D tax credit computations should an enquiry be raised by HMRC. When corresponding with HMRC any response should be courteous and considerate.
HMRC Enquiries are important. If claims have been prepared correctly and the enquiry is handled professionally you should have nothing to fear. It concerns me that low volume operators claim the absence of an HMRC enquiry as a sign of approval. It is not, it merely means the advisor has not made enough claims for their number to come up. If I were appointing an adviser, I would regard enquiry experience as important. It is to a large degree the best test and learning experience.
- Members should only undertake work they are competent to perform.
Professional Competence is a key ethical standard in tax advice. Claims with inexperienced advisers often go wrong. Our consultants under-go regular training. We also provide CPD to accountancy firms on R&D Tax Credits.
Conclusion.
If I could give clients judging advisers one bit of advice it would be: If your tax adviser does not let you see and approve what is being submitted on your behalf, then you should run a mile! That is the worse unethical behaviour I have seen by some R&D advisers. The information goes on a company tax return therefore Directors have a legal obligation to review and approve it. To HMRC, the company is responsible for the return. I can only speculate on the motives of advisers who do not show a claim to clients:
- They charge a high fee, do little or no work, and do not want to make it obvious to you. They are at it! Bad from an enquiry perspective.
- They stretched your R&D so far, as they are on a percentage fee, that they are embarrassed to show it to you. They are really at it! Awful from an enquiry perspective.
- They do not want you to see the submission and do it yourself next year. They add no value. Risky from an enquiry perspective as you do not know what was submitted on your behalf.
It is best to use an experienced professional adviser who follows the PCRT.
Christopher Toms MA MAAT, Compliance Director – RandDTax.