The cold call about past years

A food producer with about 15 staff took a call from someone who said the business was owed money for development work in past years. The owner had never heard of the relief. The caller offered to prepare claims for two earlier years on a 20% fee, with nothing to pay unless the claims succeeded, and mentioned a deadline. The two claims together came to $250,000 on the shared example. Illustrative figures.

A short engagement letter, signed the same week: 20% of the benefit as claimed, payable on receipt, no cap, no refund clause, and no mention of what happened if the tax authority asked questions. The caller's firm prepared both claims from the business's accounts and a telephone conversation with the owner. Nobody from the firm met the people who had done the development work.

The claims were filed and the refunds arrived. The owner paid the fee of $50,000 and was pleased. A year later the tax authority reviewed both years. Much of the work described as development was routine production trials, and the records to show otherwise did not exist. The claims were reduced to $150,000 in total. The business repaid $100,000 with interest where it applied, and a penalty was considered.1Source 1The business repays a reduced claim, with interest and penalties where they apply: IRS, "Interest" and "Accuracy-related penalty" (United States); HMRC, "Tell HMRC if you've claimed too much R&D tax relief" (United Kingdom); Revenue, Tax and Duty Manual Part 29-02-06, "R&D tax credit: clawback of relief" (Ireland); Income Tax Act section 161(1) and CRA, "Avoiding penalties" (Canada); Department of Industry, Science and Resources, "Decisions we make about R&D Tax Incentive applications" (Australia); Inland Revenue, "Interest on overpayments and underpayments" and "Shortfall penalties" (New Zealand); IRAS, "Penalties for errors in tax returns" (Singapore). More detail on your country page. The firm that prepared the claims had moved on, and its help with the review was not in the letter. Illustrative figures.

A fee of $50,000 on a benefit that turned out to be $150,000, the repayment of $100,000 with interest, the owner's time in the review, and a penalty question that took advice to resolve. A fee on the amount received would have been $30,000. Illustrative figures.

Moving the call to writing with the script for declining a cold call, and treating the proposal like any other. Asking do you file amended or refund claims? and checking the deadline on the country page rather than taking it from the caller. Asking who would talk to the people who did the work. A claim for a past year can be entirely legitimate, and an unsolicited approach is sometimes how a business learns that a claim exists; the cold calls red flag page says when it is a problem and when it is not. What went wrong here was not the call but the claim.

Sources

1. The business repays a reduced claim, with interest and penalties where they apply: IRS, "Interest" and "Accuracy-related penalty" (United States); HMRC, "Tell HMRC if you've claimed too much R&D tax relief" (United Kingdom); Revenue, Tax and Duty Manual Part 29-02-06, "R&D tax credit: clawback of relief" (Ireland); Income Tax Act section 161(1) and CRA, "Avoiding penalties" (Canada); Department of Industry, Science and Resources, "Decisions we make about R&D Tax Incentive applications" (Australia); Inland Revenue, "Interest on overpayments and underpayments" and "Shortfall penalties" (New Zealand); IRAS, "Penalties for errors in tax returns" (Singapore). More detail on your country page.  Back