Are past advisors causing R&D Tax Credit claim delays?

As it attempts to tackle fraudulent R&D Tax Credit claims, it appears that HMRC is now reviewing the history of advisors involved in past submissions.

R&D Tax Credit expert Paul Rosser explains how R&D claims could be delayed if previous advisors are on HMRC's “suspect list”.

Guest article written by Paul Rosser

Since the introduction of the Additional Information Form (AIF) in August 2023, which requires all companies claiming R&D tax relief to provide supporting evidence via the form prior to submission of the corresponding tax return, HMRC has stated that this has allowed it “to risk assess, process and pay claims more effectively”.

According to HMRC, all R&D claims are now risk assessed, and the information contained within the form has given it insight into the R&D activity, expenditure, and agent behaviour, which radically improves this risking process.

Based on HMRC statistics, this approach does appear to be working as these show that HMRC processed 92% of claims within 40 days in 2023-24. This is above HMRC’s published target to process 85% of claims within 40 days of receipt.

However, as you might expect, whatever measures HMRC implement to reduce the levels of invalid and fraudulent R&D claims, those advisors behind such claims will always look for ways to circumvent these measures, to ensure their dishonesty remains lucrative.

To access the AIF, an agent code is required which identifies the agent completing the form.?

The form also questions whether any other agents were involved in the claim’s preparation, requests their contact details, and the contact details of a senior officer within the claiming company.?

It is clear that HMRC wants to know who has been involved in the R&D claim and ensure it has access to them.

This new knowledge has helped HMRC in compiling a list of advisors it suspects are behind a large number of invalid/fraudulent R&D claims, so that it can use this information as part of its risk assessment process, but some advisors have already taken steps to withhold this information from HMRC.

Some agents are trying to block HMRC’s access to their client by providing the name of a senior officer but the accompanying contact details will be those of the R&D agent.?

But more worryingly, some agents have been trying to hide their own involvement by submitting the AIF via their clients’ tax portals or getting someone else (possibly the claimant’s accountant) to submit the AIF.?

Either of these solutions means that the R&D agent will not have to use their own agent code to access the AIF and as long as their name is kept off the form, HMRC will remain unaware of their involvement in the claim.

Whilst this method of hiding an advisor’s connection to an R&D claim did work effectively for a short time, it would appear HMRC is now wise to it.

I’ve recently spoken to several accountants/advisors where some of their clients’ claims are processed within the standard 40-day target but others seem to have been stuck in the process for 6 months or more.??

Requests for an update from HMRC are far from illuminating with responses such as “it’s a processing delay, call again for an update in 6 weeks”.

I was asked to review one of these claims to see if I could identify any reason specific to the claim for the delay, but it all looked fine.? The uncertainties/advances were valid and clearly defined, the SIC code was in a field to which the R&D claim related and the only advisor listed was the accountant, who as far as we know isn’t on HMRC’s list of advisors known to submit invalid/fraudulent R&D claims.

Seeing as claims prepared by this accountant on behalf of its other clients are not experiencing such delays, it would be reasonable to conclude that it isn’t.?

A bit puzzled, the accountant then mentioned that this was the first year they had assisted this client with an R&D claim, as historically they had used another advisor, but they had closed down suddenly earlier this year.

This previous advisory firm, which has long been suspected of knowingly submitting invalid R&D claims, went into liquidation owing huge amounts to HMRC, leaving many of its former clients with no support when facing compliance checks and its directors are rumoured to have fled to Dubai with millions of pounds.

This is all information that HMRC should be aware of so it wouldn’t be a risky bet to say that this firm was on HMRC’s list of suspect advisors.

Wondering if the previous use of this other advisor might be the reason for the delay, I checked with some of the other accountants/advisors who were in a similar position and in every case where there was a delay in claim processing, their client had previously used another advisor to assist with their R&D claims and all of them were advisors likely to be on HMRC’s suspect list.

As the only link between all of these companies experiencing severe processing delays is their previous relationship with advisors who were likely to be on HMRC’s suspect list, it appears that HMRC have extended their risk assessment on advisor behaviour to include not just the advisor completing the AIF or listed on the form, but also any advisor used for historic claims.??

The only reason we can see for this would be a pre-emptive measure to prevent attempts by advisors to disguise their involvement in a claim.

Whilst, if correct, this is a very pro-active step from HMRC and will hopefully be very effective in stopping those advisors behind fraudulent/invalid R&D claims, it may well also cause an issue for reputable accountants/advisors who are working with clients on valid R&D claims for the first time but who have used another advisor in the past.?

As with most of HMRC’s current compliance measures, there is an element of collateral damage.

What exactly HMRC will do if their risk assessment flags an issue with a previous advisor used is unknown at present – potentially even to HMRC, which could be freezing certain claims while it decides what to do with them.

It could be that the claiming company has a valid claim and has switched R&D providers or it could be that an advisor is trying to avoid detection, so the logical step here would be to thoroughly investigate before processing the claim, or if warranted, open a compliance check.

If you are an accountant/advisor who has clients seeing big delays in their R&D claims being processed, it might be worth checking if they have submitted R&D claims historically, and which advisor they used.

Guest article written by Paul Rosser

Paul Rosser has been in the R&D Tax Credit field since 2010 and is a Director at Research & Development Consulting Ltd.

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