Social care R&D - too good to be true?

Social care R&D – too good to be true?

HEALTHCARE UPDATE

April 2022

Hazlewoods Partner, Rachael Anstee, shares her thoughts

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I’m the first to take advantage of tax planning opportunities but am becoming concerned by how many of my social care clients are being cold called by unregulated R&D tax credit boutiques, promising substantial corporation tax refunds. I would probably be tempted too if I didn’t have background knowledge!

The R&D tax credit regime was introduced for SMEs in 2000 and if you look at the relevant HMRC web pages, it refers to companies that work on ‘innovative projects in science and technology’. My understanding is that many of the claims being made by operators are based on time spent by staff writing/updating care plans – I don’t know about you, but it doesn’t sound that innovative to me?

www.hazlewoods.co.uk

For tax purposes, R&D is specifically defined by guidelines issued by the Department for Business, Energy and Industrial Strategy (BEIS). In them, they state that R&D takes place when a project seeks to achieve an advance in science or technology, going on to explain each of those terms in more detail. In broad terms:

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A ‘project’ is stated to consist of 'a number of activities conducted to a method or plans in order to achieve an advance in science or technology’.

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An ‘advance’ means an overall advance in the relevant field as a whole, not just new knowledge for the company. Routine analysis or adaptation of existing processes, products or services are specifically excluded as they do not advance overall knowledge, even though it may be completely new to the company.

I think it must be questionable whether activities such as amendments to care plans genuinely represent an ‘advance in science’ and new knowledge to healthcare as a whole (i.e. eligible as R&D), rather than more routine ‘service’ aspects of standard care delivery, albeit using the latest, but existing, knowledge (ineligible). I suspect that HMRC would likely have the same scepticism.

Worry over abuse and boundary pushing involving the R&D tax credit regime has grown in recent years and is currently a significant concern for both HM Treasury and HMRC. We have seen a proliferation in the number of R&D advisers, who are often not members of any professional body, their fee being based on a percentage of the tax saved and, in my view, submitting some questionable claims. Based on my experience with some of these firms to date, they simply ask the operator for a few details, present some numbers (with little back up detail), and that’s it!

HMRC are aware of the issues and have recently recruited 100 new compliance officers to the R&D tax relief team. There has also been a Consultation carried out by HM Treasury, aspects of which were specifically targeted at addressing the problem of spurious R&D tax credits claims; some reforms are proposed which should result in a greater degree of scrutiny moving forward.

If you are considering carrying out an R&D claim, I urge you to ask yourself whether you believe your activities genuinely constitute as projects aimed at achieving an advance in science or technology, and whether the quantum of the claim seems to be too good to be true! Although you may use the services of an adviser, the ultimate responsibility for the accuracy of the tax return remains with the company’s directors, and it is they who will have to face the music with HMRC in the event of a claim being found to be ineligible.

My concern is that operators may find themselves with HMRC enquiries in the future and will potentially face having to pay some or all of the tax saving back to HMRC, together with penalties and interest. Will you be able to get a refund on the fee that you have paid to the R&D boutique – who knows?!”

If you have any concerns, or would like further guidance, please get in touch.

RACHAEL ANSTEE Partner

rachael.anstee@hazlewoods.co.uk www.linkedin.com/in/rachaelanstee

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