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R&D tax credits and PCRT guidance: A big leap forward for the sector

Director & Head of Policy
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PCRT guidance launched for R&D sector

With all that’s happening in the world right now, an important update to the Professional Conduct in Relation to Taxation (PCRT) guidance may have slipped past you. On June 1, new topical guidance tailored specifically to R&D tax credit advice was published by the PCRT bodies.

ForrestBrown were part of the working group who drafted this new guidance, with support from CIOT/ATT’s professional standards team. The revised guidance is a big deal for various reasons. Allow me to explain.

What is the PCRT topical guidance?

If you’re an accountant reading this, you’re already well aware of the PCRT guidance. Businesses, however, may be less familiar with it. The guidance sets out five fundamental principles that members of these professional bodies must adhere to: integrity, objectivity, professional competence, confidentiality and professional behaviour.

Individuals and companies rely on advice from professionals and it is these fundamental principles which provide them with protection against bad advice.

In terms of R&D tax advice, there are three main points which the topical guidance covers:

  • Regulatory expectations

    The guidance confirms who is covered and which services. Any member of one of the PCRT bodies (CIOT, ATT, AAT, ICAEW, ICAS, ACCA, STEP) must follow the PCRT guidance. Similarly, any advice which relates to a company’s R&D tax relief claim is subject to the PCRT guidance. This also means that an R&D tax adviser should be meeting their regulatory obligations, such as anti-money laundering (AML) and GDPR compliance.

  • Behaviour

    The principles of integrity, objectivity and professional behaviour govern the relationship between an adviser and their client. The topical guidance provides clarity on how R&D tax advisers should behave in their dealings with clients. This includes obligations such as explaining risks to their clients, sharing documents, keeping records, and not making misleading claims on their websites or in marketing materials.

  • Competence

    It may feel like stating the obvious, but in simple terms, the PCRT requires advisers to do all they can to get it right. A member must be competent to provide a specialist service, or they are not allowed to offer that service. The topical guidance clarifies that R&D tax is a specialist area and requires specialist training and CPD. It also provides examples of common errors which evidence a lack of competence.

Since they were introduced in 2000, R&D tax credits and the market for R&D tax advice have matured. This comes with good and bad aspects. More businesses are benefiting from the incentive, with an increase in awareness across all sectors. On the flip side, the lucrative nature of the incentive has drawn advisers who are only after a quick buck.

To put it bluntly, the sector has become a bit of a Wild West. All these competing claims and offers make it difficult to separate the good from the bad. But the PCRT guidance is a step in the right direction and will make this much easier.

One thing we see commonly, and which is specifically addressed in the topical guidance, is spurious claims published on websites and in marketing material for unregulated firms.

This includes manipulation of statistics, such as claiming to have a “100% success rate” or a negligible enquiry rate compared to the “national average”. In reality, HMRC don’t publish data on the number of R&D tax credit enquiries they open, so there is no reliable national average, and firms are free to use whichever methodology they like to calculate their enquiry rate, or success rate.

These sorts of statistics are therefore fairly meaningless and not a good way to compare the service quality of different advisers. Adherence to PCRT guidelines is a far better barometer .

How does the PCRT guidance apply to the R&D tax credits industry?

First and foremost, R&D tax credit advice is tax advice. An R&D tax credit claim is part of a company’s tax filing with HMRC and subject to the same expectations for accuracy. HMRC can and does check R&D tax credit claims, and has wide-ranging powers to ensure compliance. Sometimes this will result in a drawn-out enquiry.

Anyone who promises you free money with no risk is lying. No one can tell you how much relief you might be due without a detailed and diligent analysis and any reputable adviser will advise you of the risks which are always present in making a claim.

If things do go south, it’s ultimately you, the business, that will be on the hook. You must be able to trust the work that your adviser carries out on your behalf. Their transparency at all stages is vital.

Tax advisory services are not officially regulated, meaning anyone can provide tax advice. But reputable R&D tax credit advisers will have relevant professional memberships (like ICAEW or CIOT). Members of these bodies adhere to a strict code of conduct, of which the PCRT guidance is part.

At its essence, the PCRT guidance defines how advisers should act when carrying out their duties. It is, therefore, as relevant to R&D tax advice as to any accounting or tax service (from bookkeeping to filing a company tax return).

R&D tax credit advisers adhering to PCRT guidance (like ForrestBrown) will also apply robust AML checks. These checks are a vital way we protect ourselves, our clients and society at large.

Why is the new PCRT guidance on R&D tax credit advisers important?

For one, it’s risky out there. R&D tax credit claims are governed by complex tax legislation and it is easy to get things wrong. Your claim has to be defensible and it remains your responsibility even when you use an adviser. So finding the right adviser is essential, and using the wrong adviser can be costly.

A minority of tax agents don’t provide a good service to their clients. Some are professionally competent but push the boundaries of tax planning (some may even be actively dishonest). Others are incompetent or don’t adhere to acceptable professional standards.

PCRT guidance applies to members of all the main accounting and tax professional bodies. The guidance is also formally endorsed by HMRC, meaning it is the standard the tax authority expects from a reputable tax adviser. Jim Harra (Chief Executive of HMRC) recently cited the new topical guidance on R&D as a positive example of HMRC working alongside good agents to set clear expectations.

To be clear, these guidelines set out the minimum standards of behaviour and competence you can expect from a reputable adviser. There are many different types of R&D tax services available, so choosing the right adviser and service for your business is important. But if your adviser isn’t meeting these requirements, you should switch to an adviser that does.

Setting the record straight – professional standards for R&D tax credits

As I recently wrote in Accountancy Age, the R&D tax credit market has a bad name among accountants (and businesses). This dislike is, in my opinion, fair. For too long, a minority of bad players have offered nothing but shabby (and, in some cases, outright fraudulent) work.

But don’t let these spurious advisers tarnish us all. ForrestBrown has always set out to offer the highest professional standards for R&D tax credits. We’re a member of the CIOT, and as a result, we’re already accountable to the PCRT guidelines.

Indeed, we were founded as a Chartered Tax Adviser (CTA) firm, so the PCRT has always been central to our working practices, training and internal risk processes. It’s why we asked the CIOT to set up the working group that drafted the topical guidance. These standards are a core part of our DNA – and while other advisers scramble to retrofit their service to meet these standards, we’ll focus on delivering exceptional client service, as always.

Does your R&D tax credit adviser meet these standards?

ForrestBrown is a member of the Chartered Institute of Taxation (CIOT) and adheres to the PCRT guidelines. Does your R&D tax credit adviser do the same?