On 22 July 2022, HMRC launched a public consultation entitled ‘Raising standards in tax advice: protecting customers claiming tax repayments’ to guarantee that all taxpayers who meet tax repayment or relief requirements get the necessary information they need when selecting repayment agents (R&D tax advisors are considered as ‘repayment agents’ by HMRC).
After consulting with various stakeholders, including the Association of Taxation Technicians (ATT) and EmpowerRD, HMRC issued their response on 11 January 2023 and updated guidance in The HMRC standard for agents.
More information is due to be released over the next few months; however, the results from the consultation seem to suggest that regulation of the R&D advisor market is on its way, which is something we’ve long advocated for.
What initiated the consultation?
It’s no secret; over the past few years, there has been a rise in unscrupulous tax agents exploiting individuals and businesses or making fraudulent claims – particularly in R&D tax relief.
HMRC launched a consultation after receiving customer complaints about tax advisors and repayment agents and witnessing an alarming surge in fraud. For instance, according to HMRC’s annual report for 2021/22, the error and fraud rate for the R&D tax relief scheme was 4.9% of its total value, an increase from the 3.6% recorded the previous year.
With the surge of fraud cases and negative news stories emerging in the press, decisive action was a top priority for HMRC.
How will the consultation affect the R&D tax advisor market?
Following the consultation, HMRC outlined a series of steps. The most critical one for the R&D tax advisor market to note is HMRC’s decision to introduce a consistent registration requirement for repayment agents (R&D tax advisors).
Currently, R&D tax advisors are not required to register with HMRC, which makes it hard for the government to evaluate if they meet HMRC’s standard for agents or to proactively check if advisors are registered for anti-money laundering (AML) supervision.
HMRC has now concluded that every tax advisor must be registered with them, and a list should exist to include all such advisors. This creates greater transparency, allowing businesses to easily see whether an advisor meets these basic requirements.
HMRC has stated that further details on the approach to registration for R&D tax advisors will be set out in early 2023.
HMRC has made the right decision in mandating registration for all R&D tax advisors. The goal is twofold: safeguard the R&D tax relief scheme from fraud, and improve the general quality of R&D tax advisors.
Moreover, this change offers claimants more security as they can verify their chosen advisor’s qualifications when choosing who they want to work with – ultimately creating increased accountability across the sector.
This is a big step forward and one we’ve advocated for. We look forward to seeing further details in early 2023!
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