R&D Tax Credit Negligence: When Can Bad Accountant Advice Lead to a Claim?

Key Takeaways

• An HMRC enquiry into an R&D claim does not automatically mean the accountant or tax adviser was negligent.
• Negligence may arise where an adviser recommends an unsustainable claim, applies the R&D rules incorrectly or fails to obtain sufficient information before submitting the claim.
• R&D tax relief rules have changed substantially, so the correct treatment depends partly on the accounting period in which the relevant expenditure arose.
• A company remains responsible for its tax affairs, although an adviser’s mistake can still be highly relevant when HMRC considers penalties and when assessing a negligence claim.
• Recoverable loss does not automatically equal every amount repaid to HMRC; the question is what financial position the company would have been in if competent advice had been provided.
• Engagement letters, technical reports, claim calculations, correspondence and HMRC enquiry documents can be critical evidence in a professional negligence claim.

“R&D accountancy negligence is a developing area in the law of professional negligence but can involve substantial losses. It is important to obtain swift legal advice to assess the interplay between the HMRC position and the nature and the extent of any negligence claim to be advanced against the accountant. The coherent assembly and presentation of evidence will be critical to a successful claim for compensation.” Tony Hill Head of Professional Negligence & Commercial Litigation

When Can R&D Tax Advice Amount to Accountant Negligence?

R&D tax credit negligence may arise where an accountant or specialist tax adviser was retained to advise on an R&D tax relief claim, failed to exercise the reasonable skill and care expected of a competent professional and caused the company financial loss.

The fact that HMRC rejects or reduces a claim does not, by itself, prove negligence.

R&D eligibility can involve technical and fact-sensitive questions. A professional may reasonably reach a conclusion with which HMRC later disagrees.

The stronger negligence cases are generally those where there was a more fundamental failure. For example, an adviser may have misunderstood the rules, failed to obtain the information required to assess eligibility, included expenditure that clearly fell outside the applicable regime or recommended a claim that could not reasonably be supported by the company's actual R&D activity.

The adviser’s engagement is also important. An accountant instructed only to incorporate figures supplied by another R&D specialist may have a different responsibility from an adviser specifically retained to assess eligibility and prepare the claim.

What R&D Tax Claim Errors Can Lead to Problems With HMRC?

Errors in an R&D claim can arise at several stages.

Potential problems include:

• advising that a project qualifies without properly assessing the scientific or technological advance;
• failing to identify the uncertainties the project was seeking to resolve;
• including expenditure that was not qualifying expenditure;
• incorrectly calculating staff or subcontractor costs;
• applying the wrong rules to contracted-out R&D;
• failing to consider the restrictions, and the limited exceptions, affecting overseas contracted-out R&D and overseas externally provided workers;
• incorrectly assessing whether a company qualifies for enhanced R&D intensive support;
• using inappropriate assumptions when calculating qualifying expenditure;
• failing to obtain adequate technical evidence from the company's competent professionals;
• submitting generic or formulaic project descriptions that do not properly explain the R&D undertaken;
• failing to submit a required claim notification or Additional Information Form, either of which can prevent an otherwise valid claim from being made; or
• continuing to recommend an aggressive position despite significant weaknesses in the available evidence.

The rules are particularly important because the R&D regime has undergone substantial reform.

For accounting periods beginning on or after 1 April 2024, the former SME and RDEC regimes were replaced by the merged R&D expenditure credit scheme, alongside enhanced R&D intensive support for qualifying loss-making R&D-intensive SMEs.

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This means advice that may have been correct for an earlier accounting period cannot simply be applied to a later claim without considering the relevant rules.

What Happens During an HMRC Enquiry Into an R&D Claim?

An HMRC R&D enquiry is a compliance check into whether the company was entitled to the relief it claimed and whether the amount claimed was correct.

HMRC may seek information about:

• the nature of the projects;
• the scientific or technological advance sought;
• the uncertainties encountered;
• the role of competent professionals;
• qualifying expenditure;
• employees and subcontractors;
• the calculation methodology; and
• the information provided when the original claim was prepared.

An enquiry does not necessarily mean the claim is invalid.

However, if the company cannot substantiate the claim, HMRC may reduce or disallow it. This may result in additional Corporation Tax becoming payable or previously received relief or credits having to be repaid.

HMRC may also be able to raise a discovery assessment after the normal enquiry window has closed where the relevant statutory conditions are met. Problems with an R&D claim can therefore surface some time after it was made.

HMRC has substantially increased its scrutiny of R&D claims in recent years. Its published estimates show that error and fraud in the R&D reliefs remain significant, although HMRC reports that recent policy and operational measures have reduced the rate. Its 2024–25 annual report gave an illustrative error and fraud rate of 5.9% (around £481 million) for 2024–25 expenditure. New information requirements and increased compliance activity have been introduced to address incorrect claims.

For a company that relied on professional advice, an HMRC challenge may therefore be the first indication that the advice it received needs independent scrutiny.

If My Accountant Made the R&D Tax Claim Error, Am I Still Responsible to HMRC?

Potentially, yes.

Appointing an accountant does not transfer responsibility for the company's tax affairs to the adviser.

HMRC can still correct an inaccurate tax position and require repayment of relief that the company was not legally entitled to receive, even if the mistake originated with an accountant or R&D adviser.

The position on penalties is more nuanced.

HMRC considers why an inaccuracy occurred and the behaviour of the taxpayer. Its guidance recognises that a taxpayer who goes to an apparently competent adviser, gives the adviser a full and accurate set of facts, and checks the adviser’s work to the best of their ability and competence will have taken reasonable care. The burden is on the company to show this, and HMRC will expect evidence of what passed between the company and its adviser. The circumstances of each case nevertheless matter.

This creates an important distinction between the company's liability to HMRC and a separate professional negligence claim against its adviser.

A company may owe money back to HMRC while simultaneously having a potential claim against the professional whose negligent advice caused additional loss.

Can You Claim Against an Accountant if an R&D Claim Has to Be Repaid?

Potentially, but the amount repaid to HMRC is not automatically the measure of the negligence claim.

Professional negligence damages generally seek to place the claimant in the financial position it would probably have occupied had competent advice been provided.

If a company was never legally entitled to a particular R&D tax benefit, repaying that benefit does not necessarily represent a loss caused by the accountant. Competent advice would not have entitled the company to retain relief that was never lawfully available.

The potential negligence loss may instead include matters such as:

• penalties that would otherwise have been avoided;
• additional financing costs and, in some circumstances, interest;
• wasted adviser fees;
• reasonable costs of responding to an HMRC enquiry;
• fees paid to replacement accountants or tax specialists;
• loss of a valid R&D relief that competent advice would have secured; or
• other financial consequences caused by reliance on the negligent advice, where legally recoverable.

The position can be different where the accountant's mistake caused the company to lose relief to which it genuinely would have been entitled.

For example, an adviser may fail to identify qualifying projects, omit valid expenditure, apply the wrong regime or miss a procedural requirement that causes an otherwise available claim to be lost.

In those circumstances, the value of the lost relief may form an important part of the claim, subject to evidence on causation and the scope of the adviser's duty.

What If an R&D Adviser Encouraged an Aggressive or Unsupported Claim?

The fact that an R&D adviser encouraged a company to make a claim does not automatically remove responsibility from the company.

Directors and senior personnel are expected to provide accurate information to their advisers and to review the claim before it is submitted. A senior officer of the company must be identified on the Additional Information Form supporting the claim.

However, businesses are entitled to obtain specialist professional advice precisely because R&D tax legislation can be complex. HMRC does not regulate tax agents, including those who advise on R&D claims, so the choice of adviser matters.

A negligence claim may therefore arise where the adviser presented an unsustainable claim as legitimate, failed to explain material risks, overstated the likelihood of qualification or failed to distinguish between an arguable interpretation and a claim that lacked a proper factual or technical basis.

Evidence may include sales representations, emails, engagement letters, technical interviews and advice given before the claim was approved.

Particular care may be required where an adviser was remunerated by reference to the value of the R&D claim, although a contingency-based fee does not itself establish negligence.

What If the Accountant Failed to Claim R&D Tax Relief?

Accountant negligence can also arise in the opposite situation: where a company had a legitimate entitlement to R&D relief but the accountant failed to identify or pursue it.

Examples may include:

• failing to recognise that qualifying development work was being carried out;
• incorrectly advising that the company was ineligible;
• omitting qualifying expenditure;
• applying the wrong R&D regime;
• failing to make the claim within the statutory time limit, which is generally two years from the end of the period of account, or to submit a required claim notification in time; or
• failing to tell the company that specialist R&D advice should be obtained where the accountant was not competent to advise.

A claimant would still need to prove that a valid claim would probably have succeeded.

It is not enough to establish that the accountant failed to raise the subject of R&D relief. The company must be able to demonstrate the underlying entitlement and quantify the benefit that would probably have been obtained.

How Do You Prove R&D Tax Adviser Negligence?

A professional negligence claim will usually require consideration of four central issues:

• Duty: What advice or services did the accountant or tax adviser agree to provide?
• Breach: Did that advice fall below the standard reasonably expected of a competent professional undertaking that work?
• Causation: What would probably have happened if correct advice had been given?
• Loss: What financial loss resulted from the negligent advice?

The scope and purpose of the professional's duty are important when determining which losses fall within their responsibility. The Supreme Court confirmed in Manchester Building Society v Grant Thornton UK LLP [2021] UKSC 20 that the scope of an adviser’s duty is determined by the purpose for which the advice was given.

In R&D disputes, expert evidence may be required to determine both whether the advice fell below an appropriate professional standard and what tax position would have arisen under competent advice.

Important documents may include:

• the engagement letter;
• R&D reports and technical narratives;
• calculations supporting the claim;
• company tax returns;
• claim notifications and Additional Information Forms;
• correspondence with the adviser;
• internal company records concerning the R&D projects;
• invoices and expenditure records; and
• all HMRC enquiry correspondence and decisions.

What Compensation May Be Recoverable?

The recoverable loss will depend on what competent advice would probably have achieved.

Care is needed when valuing claims involving tax. Tax that would always have been lawfully payable should not simply be treated as a recoverable negligence loss.

Damages may also be reduced if the company’s own conduct contributed to the loss, for example where it supplied inaccurate information to the adviser or ignored clear warnings.

Time Limits for R&D Accountant Negligence Claims

Strict limitation periods apply.

A claim for breach of contract must generally be brought within six years of the breach.

A negligence claim in tort must generally be brought within six years of the date on which the company first suffered actionable damage, although identifying that date can be more complicated.

Where the company did not initially have the relevant knowledge, section 14A of the Limitation Act 1980 may provide an alternative period of three years from the date on which it first had the knowledge required to bring a claim, if that period expires later than the six-year period. Section 14A applies only to claims in negligence; it does not extend the time limit for a claim brought solely for breach of contract.

A fifteen-year longstop under section 14B runs from the date of the negligent act or omission and can bar a negligence claim even if the company did not know about the problem.

R&D claims can create particular limitation difficulties because the negligent advice may have been given years before HMRC opens an enquiry.

Do not assume that limitation starts only when HMRC rejects the claim or when the adviser accepts responsibility.

These are the rules in England and Wales. Different limitation rules apply in Scotland and Northern Ireland.

How Does an R&D Tax Negligence Claim Proceed?

The first stage is usually to obtain the accountant or R&D adviser's file and establish precisely what they were instructed to do.

The underlying R&D claim then needs to be reconstructed to determine whether it was valid, partially valid or fundamentally defective.

Where appropriate, independent tax or accountancy expert evidence may be needed.

Professional negligence claims will generally be dealt with under the Professional Negligence Pre-Action Protocol. A Preliminary Notice may be sent once there is a reasonable chance of a claim, followed by a detailed Letter of Claim setting out the allegations, causation and loss.

The professional and its insurers then have an opportunity to investigate and respond.

Negotiation, mediation and other forms of alternative dispute resolution may resolve the dispute without trial. Court proceedings remain available where liability or the amount of loss cannot be agreed.

The Protocol does not suspend statutory limitation periods. Where a deadline is approaching, the parties may agree a standstill agreement, or proceedings may need to be issued to protect the claim and then stayed while the Protocol is followed.

Has Bad R&D Tax Advice Caused Your Business Financial Loss?

An HMRC R&D enquiry can expose weaknesses in tax advice that may have remained hidden for several years.

Not every unsuccessful or reduced R&D claim amounts to negligence. However, where an accountant or specialist adviser recommended an unsupported claim, misunderstood the applicable rules, failed to advise on significant risks or caused a valid relief to be lost, the professional advice should be examined carefully.

Wealth Recovery Solicitors can review the scope of the adviser's instructions, the original R&D claim, HMRC's position and the financial consequences to assess whether you may have grounds for an accountant and tax adviser negligence claim.

If you choose to speak to our legal team, bring the engagement documentation, R&D report, claim calculations and HMRC correspondence where available.

If negligent R&D tax advice has resulted in an HMRC enquiry or substantial financial loss, contact Wealth Recovery Solicitors for an initial assessment of your options.

Can I sue my accountant if HMRC rejects my R&D tax claim?

Potentially. An HMRC rejection does not itself prove negligence. You would normally need to establish that the accountant or adviser failed to exercise reasonable skill and care and that competent advice would have resulted in a better financial outcome.

Who is responsible if an accountant submits an incorrect R&D claim?

The company remains responsible for its tax affairs and HMRC can require repayment of relief that was incorrectly claimed. However, the company may have a separate professional negligence claim against an adviser whose negligent work caused additional financial loss.

Can I recover an HMRC penalty from my accountant?

Potentially, where the penalty was caused by negligent professional advice and would otherwise have been avoided. The facts surrounding the company's own conduct, information provided to the adviser and HMRC's reasons for imposing the penalty will be important.

What should I do if HMRC opens an enquiry into my R&D claim?

Preserve the claim documentation and correspondence, understand precisely what HMRC is challenging and obtain independent advice where necessary. If the original adviser may have made an error, consider obtaining the adviser's full file and assessing possible professional negligence at an early stage, bearing in mind that limitation periods may already be running.

Can I claim if my accountant failed to tell me about R&D tax relief?

Potentially, but you would need to establish both that the accountant owed a relevant duty to advise and that your company would probably have qualified for relief. The scope of the engagement and evidence of the underlying R&D activity will be important.