Nothing to do with Covid 19 thankfully, I attach a case history concerning the application of R&D Claims, a favourite ‘ambulance chasing’ sector of the accounting industry. The message from the case is clear…..be careful and obtain evidence in support of your claim.
What accountants need to know from the AHK Recruitment R&D tax tribunal case
HMRC recently reported on the outcome of a first-tier tax tribunal case investigation into an R&D tax claim.
What happened during the investigation
In this case, AHK Recruitment Limited worked with Optimal Compliance to compile an R&D claim for an internal software project. HMRC opened an enquiry to understand how the project qualified as R&D in line with the legislation. After months and months of delays following HMRC requests for evidence Optimal, on behalf of AHK, could not produce sufficient evidence around the projects and critically could not produce a competent professional at AHK to provide evidence. Whilst CVs were submitted, HMRC could not speak to them directly. The HMRC enquiry also highlighted that whilst subcontractors costs formed part of the claim there was no evidence of what they were doing and how it aligned to any potential R&D project.
What can we learn from this case?
- HMRC are reasonable with R&D enquiries
- HMRC gave the company extra time and guidance to help them evidence what their R&D was.
- If you give HMRC the run around it will put you in a difficult position. It is essential to engage with HMRC when asked – companies or advisors should build a line of communication with HMRC that is both timely and accurate.
- Don’t underestimate the role of a competent professional
As much as an accountant or R&D advisor should drive out the eligible R&D expenditure with their clients, the company should always be in a position to present the competent professionals to HMRC. This is one reason why GovGrant spends time with our clients (ideally meeting face to face). When we make a claim we always consider how any competent professional will respond to HMRC in the event of an enquiry. It is increasingly common for accountants to be involved with R&D claims, what this case underlines is that it is not just about the numbers and that the technical assessments need real thought and challenge.
- The baseline is essential to establish the validity of a claim
This means evidencing what solutions were available, why they didn’t work and showing that enough work had been done to explore a solution before embarking on a project. To demonstrate R&D has taken place there needs to be an advance in the field which raises the overall knowledge above baseline. Advisors should take this point as a must – it also aligns to the current thinking in the HMRC tax credit consultation with calls for evidence of IP management at the start and throughout the R&D process.
- Evidence in any R&D claim should be a legal requirement
There is no actual requirement for technical evidence to be submitted with an R&D claim and it may only be required in an enquiry situation. This leaves the door open to poor practice and accountants need to be comfortable that where their client is using a third party R&D advisor, their client has chosen an appropriate partner with the right level of expertise.
- Third-party costs need to be documented
The costs associated with any claim, particularly from third parties, need to have solid and accurate documentation which details the specifics of what was done or delivered.
What it means for R&D advisors
The R&D market is a competitive one with new players on an almost daily basis. As most advisors charge on a contingent basis, sadly there are some poor behaviours that make this market feel more PPI than professional services. This case underlines the reality – R&D is complex and needs due skill and attention from a professional. We at GovGrant believe in the specialist nature of R&D work – in the methodology of a claim, the compliance to legislation and the technical evidence needed.
This judgement should not scare clients who are making an R&D claim or deter accountants from raising the potential, quite the opposite. This is a vital source of government investment in innovation – but it needs to be treated as such – an investment, not free cash for anyone who asks.
There should be no room in this industry for cowboys and poor practice as agents have a role to play in protecting the integrity of the scheme and that the government investment is well place. Providers who offer headline solutions of compiling R&D claims in ‘minutes, not hours’ need serious scrutiny. Can you get enough evidence in minutes and will those providers be there to support you in an HMRC enquiry? Most certainly not.
There is obviously a need in some cases to streamline processes and make the process reflective of the benefit that is received – but not at the price of potential abuse. DIY software platforms have a role to play but accountants and advisors should be under no illusion that it replaces in depth consultancy when it is needed.
Just a polite reminder:
- Furlough claims for the May payroll to be completed.
- ‘Bounce Back’ loans to be claimed for those that wish to.
- Self employed claims. The letters to those qualifying are now being issued (originally planned for June). If you are self-employed and you haven’t had a letter by say 1st June, then do please let us know.
- I should say that we have yet to complete a CBIL loan, which is a pretty poor show on behalf of the banks.
As to Harris and Clarke, then life carries on as normal. The usual tax return letters are being sent out (albeit later than usual) and do let us have your books and records as usual. We have maintained a skeleton staff throughout the ordeal and now are slowly bringing back staff to our full complement, subject to soap, hand sanitizer and usual good humour. I would like to say the end is in sight, but instead will quote Churchill after El Alamein, ‘This is not the end, or the beginning of the end, but it may be the end of the beginning’. We shall see.
And lastly, for all you Eel fans out there you will no doubt be pleased that the Government have seen fit that young elvers have reached the Great Ouse.https://www.gov.uk/government/news/eels-have-arrived-at-the-great-ouse. It would appear that at least the stoat and eel populations have thrived during the lock down period.
I will not send Round Robins unless there is something worth saying. Two things please:
- Individuals attitude to borrowing money varies, but quite frankly the ‘Bounce Back’ loan should be keenly pursued in my opinion. 12 month interest free, followed by 5 years at 2.5%. Why would you not do that? No arrangement fees! Apply through your individual banks portal. It is not difficult and the money comes through quickly. Just don’t spend it!
- Furlough. The scheme has been extended to October, but with ‘changes’ in August. I don’t wholly understand the thinking here. In my view the furlough is the best way to get people back to work as lack of money generally concentrates the mind. The extension must be indicative that the safety concerns are not yet over.
Thankfully we are not in charge of this process and the reaction to it. It is a wholly invidious role as everyone has an opinion, usually laced with a good dose of hindsight. I just hope Miriam Margolyes has plenty of self isolation time to reflect upon her nastiness.
As always, any queries please shout
Please find details of the new initiative, the ‘bounce back’ loan. I presume this is necessary because the banks have made a hash of the original CBIL’s initiative.
This initiative should be actively pursued, once the application period opens on 4th May.
Please find the approved legislation concerning the scheme.
Firstly, Happy St.George’s day. Currently there would appear to be an obvious dragon that could be usefully slain and any assistance would be appreciated. (No, not Matt Hancock).
Secondly. We have now completed a few Furlough scheme applications and the consensus appears to be that they are reasonably straightforward for monthly paid staff, but once any level of detail is delved into, the process becomes the more difficult; average wages, employment allowance, directors etc etc.
There is also the practical problem of obtaining / remembering gateway passwords, where the payroll package automatically submits the RTI information.
So, the advice has to be to be careful. Once this is all over and St.George has done his job, the HMRC audit department will be all over the claims like a rash. (They already have the payroll figures don’t forget). Currently, there is no legislation, or case precedent to refer to as such so, above all, keep all your workings and be able to justify what you are doing.
We certainly do not have a monopoly of wisdom in this matter, but if you want to discuss or garner a second opinion please do make contact.
Nothing really new to report, save that the Furlough scheme is now open for business (any help required do please contact) and the government have announced a one stop shop for the various Covid 19 packages.
In preparation for the furlough claim which opens on 20th April, we have now been given guidelines as to the necessary preparatory work. (See below).
If you require any help in this connection please shout.
We wrote to you last week to help you prepare to make a claim through the Coronavirus Job Retention Scheme. We are now writing to tell you how and when to access the system with some more information about what you will need to have ready before the system goes live.
We are also updating you on an important change to the scheme relating to employee eligibility:
- you can claim for employees that were employed as of 19 March 2020 and were on your PAYE payroll on or before that date; this means that you will have made an RTI submission notifying us of payment of that employee on or before 19 March 2020
- employees that were employed as of 28 February 2020 and on payroll (i.e. notified to us on an RTI submission on or before 28 February) and were made redundant or stopped working for you after that, and prior to 19 March 2020, can also qualify for the scheme if you re-employ them and put them on furlough.
More information on this can be found on GOV.UK.
How to claim
As you prepare to make a claim, please note:
- the online claim service will be launched on GOV.UK on 20?? April 2020 – please do not try to access it before this date as it won’t be available
- the only way to make a claim is online – the service should be simple to use and any support you need available on GOV.UK; this will include help with calculating the amount you can claim
- you can make the claim yourself even if you usually use an agent
- claims will be paid within 6 working days; you should not contact us unless it is absolutely necessary – any queries should be directed to your agent, representative or our webchat service
- we cannot answer any queries from employees – they will need to raise these with you, as their employer, directly.
Information you will need before you make a claim
In addition to the information in our previous email, you will need to have the following before 20?? April 2020:
- a Government Gateway (GG) ID and password – if you don’t already have a GG account, you can apply for one online, or by going to GOV.UK and searching for ‘HMRC services: sign in or register’
- be enrolled for PAYE online – if you aren’t registered yet, you can do so now, or by going to GOV.UK and searching for ‘PAYE Online for employers’
- the following information for each furloughed employee you will be claiming for:
- National Insurance number.
- Claim period and claim amount.
- PAYE/employee number (optional).
- if you have fewer than 100 furloughed staff – you will need to input information directly into the system for each employee
- if you have 100 or more furloughed staff – you will need to upload a file with information for each employee; we will accept the following file types: .xls .xlsx .csv .ods.
If you want an agent to act for you
- agents authorised to act for you on PAYE matters can make the claim on your behalf using their ID and password
- you will need to tell your agent which UK bank account you want the grant to be paid into, in order to ensure funds are paid as quickly as possible to you.
You should retain all records and calculations in respect of your claims.
Guidance on GOV.UK is being regularly updated so please review it frequently.
We continue to wish you all the best at this challenging time.
First Permanent Secretary and Chief Executive – HMRC
Despite being told that the Councils would contact the ratepayer, inevitably there is a form that has to be completed if you want to claim from NBC!
Please find the link below:
This applies to recipients of rate relief and those in the leisure and retail industries.
Please find a HMRC letter in respect of the preparation for the Furlough scheme payments. Do please be careful of scammers!
We want to help you get ready to make a claim under the Coronavirus Job Retention Scheme.
If you’re eligible for the scheme, there are things that you can do now to be ready when the system is up and running later this month.
You’ll need to provide the following to make a claim:
1. The bank account number and sort code you’d like us to use when we pay your claim.
2. The name and phone number of the person in your business for us to call with any questions.
3. Your Self-Assessment UTR (Unique Tax Reference), Company UTR or CRN (Company Registration Number).
4. The name, employee number and National Insurance number for each of your furloughed employees.
5. The total amount being claimed for all employees and the total furlough period.
If you use an agent who is authorised to act for you for PAYE purposes, they will be able to make a claim on your behalf, so please speak to them now.
However, if you use a file-only agent (files your RTI return but doesn’t act for you in other matters), they won’t be able to make a claim for you and you’ll need the information listed above from them to make the claim yourself.
For more detailed advice, please visit GOV.UK. This guidance is being regularly updated, so please review it frequently.
You may also find this recorded webinar helpful, ‘Coronavirus (COVID-19) Job Retention Scheme’, available on HMRC’s YouTube channel.
We’ll email you again in the next few days with more details on how and when to access the online system – please do not try to do this until we let you know it is available.
We wish you all the best at this challenging time,
HMRC Customer Services