R&D Tax Relief: When Bad Advice Leads to Professional Negligence Claims

For many UK businesses, R&D tax relief has offered a welcome cash injection, designed to reward innovation, fund development, and encourage technical progress. But in recent years, HMRC has stepped up its scrutiny of R&D claims (including recently suspending all claims made whilst each one was investigated), and the fallout has revealed a troubling pattern: R&D claims that should never have been made, exaggerated claims, or claims submitted based on negligent professional advice.

In the worst cases, businesses are now facing repayment demands, penalties, and even allegations of dishonesty — all because they relied on advisers who didn’t do their job properly.

So what happens when an R&D claim goes wrong because of bad advice? And can businesses bring professional negligence claims to recover the damage?

The Rise (and Regulation) of R&D Tax Advice

Over the last decade, a growing number of firms, many operating outside the mainstream accountancy and legal sectors, began offering R&D tax credit services. Often these firms worked on a contingency fee basis, charging a percentage of the tax savings or credit obtained.

Unfortunately, this model incentivised aggressive claiming. In many cases:

• Claims were submitted for projects that did not meet the legal definition of R&D
• Costs were inflated or misclassified
• Businesses were assured that HMRC would not check the claim or that they had a “risk-free” opportunity to obtain a rebate

Fast-forward to today, and HMRC has tightened its rules. There’s now a requirement to name the R&D adviser on claims, pre-notification rules, and more active compliance checks. Many businesses are now discovering that they should not have claimed, and are being asked to repay large sums, sometimes years later.

When Is an Adviser Liable?

If a business relied on professional advice when making an R&D claim, and that advice turns out to be negligent, it may be possible to recover losses through a professional negligence claim.

Key questions include:

• Was the advice wrong in law or fact? For example, were non-qualifying activities incorrectly described as R&D?
• Was there a duty of care? Most advisory firms will owe a clear duty to their client.
• Did the adviser fail to exercise reasonable skill and care? That’s the test for negligence.
• Has the client suffered a loss which properly advised could have been avoided? This could include the amount repaid to HMRC, penalties, interest, and associated legal or accountancy fees.

It’s worth noting that some of the worst cases involve unregulated “R&D boutiques” with limited insurance or unclear terms of engagement. But even where the adviser was a qualified accountant or tax professional, if they acted negligently, they may be liable.

In some cases, where the claim was made several years ago, limitation periods become relevant, but the time may run from when the client first discovered (or ought to have discovered) the negligent advice, so it’s important not to assume you’re out of time.

What About Cases Where the Business Acted Dishonestly?

Not all problematic R&D claims are the result of bad advice. In some cases, businesses may have overstated their R&D claims knowingly, or at least turned a blind eye. In those situations, bringing a negligence claim becomes much harder.

But in the majority of cases we see, businesses genuinely relied on what they thought was expert advice, without any intent to deceive. Those are the cases where professional negligence claims can be powerful.  

Taking Action

If your business is facing a dispute with HMRC over a previous R&D claim, and you think you may have been let down by your adviser, it’s important to:

1. Get independent legal advice on the underlying tax position
2. Assess whether the original adviser may have been negligent
3. Act quickly to preserve evidence and avoid falling foul of limitation deadlines

We act for businesses facing HMRC enquiries into R&D claims, and for those considering professional negligence claims against advisers who gave poor or reckless advice.

To discuss your situation in confidence, get in touch.