PCRT is a framework created jointly by all the main UK accounting associations (e.g. ACC, CIOT and others) that sets out a set of obligations and best practices for accounting and tax professionals. Members who don’t comply with the PCRT rules can be brought to disciplinary hearings, fined or even struck from the register.
In June 2020, the associations added guidance to companies that advise on managing and preparing R&D Tax Credit claims.
Although not all specialist R&D claim companies are bound by these rules, PCRT can still serve as a useful guide if you outsource your R&D claims. It summarises the standards that you should be able to expect from your provider and points out some ‘red flags’ to look out for when assessing a provider.
The guidance largely deals with ensuring that the accounting professionals that take on the responsibility of advising on and preparing R&D claims are in a position to produce high-quality, valid R&D claims. Although the scheme works through the corporation tax system, under the PCRT rules, having an accountancy or tax advisor qualification does not automatically authorise someone to give professional advice on R&D Tax Credits or claim preparation.
Since eligibility for the scheme depends on technological advances and uncertainties found in the claimants’ activities, advisers ideally need to have sufficient legislative and technical knowledge (or work closely with someone who does) to file an optimal claim. Here are some examples of this in the PCRT guidance:
“An adviser should not indicate to a client that they can prepare a claim without having sufficient expertise or experience in this area. This can result in poor quality/inaccurate R&D claims.”
“Members must not undertake professional work which they are not competent to perform unless they obtain appropriate assistance from a suitably qualified specialist.“
“Members must not provide R&D tax advice unless they are competent to do so.”
Source: icaew.com
PCRT details five areas that advisors should be competent in before working on an R&D claim on behalf of their clients:
- Identifying eligibility
For example, knowing the correct company structure and the required relationship to the qualifying project that would either qualify or disqualify a company from claiming. - Differentiating between qualifying and non-qualifying activities
Being able to identify activities that are considered ‘R&D for tax purposes’ and being able to draw a clear boundary where qualifying activities begin and end within a larger project. - Identifying eligible expenditure. For example:
- knowing all the allowable cost categories
- know all the exclusions
- keeping up-to-date with changes to legislations on eligible expenditure
- Claim calculation. For example:
- Being able to reach an accurate claim value
- using the correct benefit rates and claim types (e.g. SME vs. RDEC),
- knowing to exclude expenditure that was funded by another form of notified state aid
- applying the necessary benefit caps where applicable
- supporting the narrative / analysis of the claim. For example:
- Understanding why a project qualifies in the context of the legislation and being able to justify it
- Assembling supporting documentation, evidence and data that supports the claim narrative
Examples of questions to ask your accountants before assigning them your R&D Tax Credits claim preparation:
- What past and ongoing CPD training have they undertaken in R&D claim preparation?
- How many R&D Tax Credits claims have they prepared?
- What is their level of experience in preparing claims in your particular sector?
- What is their enquiry rate? (i.e. the percentage of claims they filed that triggered an enquiry or questioning by HMRC).
- In the case where the claim triggers an enquiry, who has ownership of defending it and what will be the cost implications?
Conclusion:
Whether or not advisors are answerable to PCRT rules, low-quality claims can cause significant losses to all the parties involved. These losses can come in the form of under-claiming or triggering an HMRC enquiry.
An underqualified advisor who produces a low-quality claim will not likely be able to defend the claim effectively in the case of an enquiry. From HMRC’s perspective, not engaging a qualified advisor can be considered careless and they can issue penalties of up to 100% of the claim value. In fact, enquiry letters now ask the claimant company for the details of the person (or people) who prepared the claim.
On a larger scale when too many low-qualify claims are filed, this invites tighter regulation of the scheme and introduction of higher payment caps which can indirectly affect companies that are carrying out genuine innovation.
Related: Low Quality R&D Claims – Why They Exist and How to Spot One
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