According to HMRC some Nursing and Care Homes are stretching the bounds of belief with their claims for Research & Development (R&D) Relief and is asking claimants to watch out for rogue tax agents.
HMRC are sending 'nudge' letters to Nursing and Care Home businesses warning them that specialist R&D agents are approaching them with dubious R&D relief strategies, including making claims that 'Sensory Gardens', special diet meals and menus, furniture and customer database creation are all eligible for relief.
R&D Relief provides a small company with an enhanced deduction of 186% of any qualifying expenditure or a repayable credit of 10%
To qualify as R&D, an activity must be both:
- Accounted for as R&D under generally accepted accounting practice.
- Fall within the special definitions set out in the BIS Guidelines.
It's highly debatable as to whether the kind of activities thought that are being claimed by care homes actually consist of qualifying R&D.
The BEIS guidelines broadly state that there must be uncertainty that the final objective can be achieved and there must be an advance in science or technology through the resolution of scientific or technological uncertainty. The knowledge being sought must also not be already available in the public domain.
HMRC's letter shared by the Chartered Institute of Taxation (CIOT), explains that companies are often cold-called by R&D agents and offered “no win no fee” services.
HMRC warn, "It’s not impossible for nursing and care homes to meet the R&D criteria, but we think it’s unlikely. This is because we’ve seen very little evidence of businesses in these sectors doing any qualifying R&D activity."
How the agents operate
- The Agent will cold-call a business claiming it is likely to be due a tax refund based on R&D activities.
- HMRC initially Approves an R&D repayment from which the agent takes a 15-25% fee.
What happens in the approval process
- Just because HMRC have paid a claim, it doesn’t mean they have approved it.
- If a claim is subsequently found to be incorrect, the company will need to pay back all of the money to HMRC, including any fee deducted by the agent.
- HMRC may also charge interest and a financial penalty.
HMRC's letter also provides a list of questions that the directors should ask themselves if contacted by an agent who suggests the company may qualify for R&D tax relief, primarily, "Is this too good to be true?"
Useful guides on this topic
Reasonable care: How do you pick a tax agent?
Tax penalties are charged according to a tariff but this is modified to take into account the taxpayer’s behaviour. When it is agreed that the taxpayer has taken 'reasonable care', no penalty will be charged. This is a brief summary to consider if you are picking a tax agent.
R&D Tax Relief: Overview
What is R&D Relief? How does it work? Why does the size of the company matter? What is sub-contracted R&D? How do I write an R&D Report?
R&D Zone: Do I have a valid R&D Claim? (DIY Advanced Assurance)
Do I have a valid R&D Claim? What conditions do I need to meet? What form of relief can I claim?
R&D: SME Tax Credit scheme
What Research & Development (R&D) schemes are available for small and medium-sized companies undertaking R&D? How to make an R&D claim? What are the qualifying costs and how much can be claimed?
External link
HMRC Nudge letter to Care Homes
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