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The National Audit Office report on the management of tax relief (tinyurl.com/naomtefeb) raises an important issue on research and development (R&D) tax credits. How should the government balance encouraging the take-up of the relief with the risk of abuse? Targeted anti-avoidance legislation is one method although, as the report makes clear, this can take a long time to be effective.
But are other approaches possible? I have seen R&D work of the highest quality from firms large and small, but I have also seen claims that have little or no credibility and which, in some cases, come close to fraud. There is a real problem when a reputable firm looks objectively at a client’s business and concludes no qualifying R&D is carried on, only to find the client has gone elsewhere and submitted a claim which could not possibly be defended were HMRC to investigate it fully.
But therein lies the problem. Would we want HMRC to investigate every claim just to weed out the substandard ones? That would inevitably involve additional expense to clients in having to deal with enquiries that ended up validating the claim.
I wonder whether the time has come for a registration system, so only those firms that meet specific standards would be eligible to submit claims. There are, of course, a series of arguments against this, from philosophical ones about freedom to trade to more practical ones about defining the standards and how approved status could be determined. But I believe there is a serious case for a discussion in the profession on the part we can play in stamping out abuse.
