Burleigh Ltd: an R&D claim the promoter wrote

The client is legally responsible for the return, but you must not be associated with a return you know or believe to be misleading, and must act with integrity and objectivity (PCRT; IESBA). Signing on the strength of a promoter's narrative you cannot corroborate would breach both.

Work to do first:

• Obtain the primary technical evidence from Burleigh's own engineers: what was the advance, what was the uncertainty, how was it resolved, what competent professionals were involved. The promoter's report is not evidence.
• Assess the £1.1m of cosmetic changes against the 'advance in science or technology' test. Routine or aesthetic changes to an existing product will not qualify; expect a substantial reduction.
• Reconcile the claimed cost categories to the payroll and ledger; check the staff are directly and actively engaged in the R&D and that no subsidised or otherwise excluded expenditure is included.
• Confirm the claim is properly endorsed by a senior company officer and supported by the compulsory additional information form, which also requires the agent's details. The promoter's involvement must be disclosed there.

The 'we will handle any enquiry' assurance is worthless - HMRC deals with the taxpayer, not the promoter, and a contingent fee gives the promoter every incentive to inflate the claim. If Burleigh will not support a defensible figure, advise the reduced claim or none, and if it insists on filing, decline to act and consider resignation and reporting the matter internally.

The shareholding is a self-interest threat to objectivity. Tax work does not carry the absolute independence rules of audit, but a partner with a direct financial interest in the client benefiting from a £2.4m claim cannot be objective about whether it is supportable.

Actions:

• Remove that partner from any involvement in the engagement, including any review, sign-off or discussion of the claim.
• Escalate to the firm's ethics partner and record the threat, the safeguards and the conclusion.
• Consider whether the interest should be disclosed to the client and whether it breaches the firm's own policy on partner holdings; if the partner acquired the shares during the engagement, that is a conduct issue in its own right.

Keeping the fee arrangement out of the papers - refuse, unambiguously. Working papers must be a complete and accurate record; deliberately omitting the promoter's contingent fee is a false record and undermines your ability to assess the arrangement. It is also the very thing an HMRC enquiry will probe.

Record the request and your refusal. A request to conceal information from the file is a red flag about the client and the promoter, and should feed into your assessment of whether to continue to act. It may also be relevant to the firm's anti-money-laundering risk assessment and to whether the arrangement needs notifying under any disclosure regime.

A politically exposed person is not a bar to acting, but it triggers enhanced due diligence: establish and document source of funds and source of wealth for both the company's funding of the promoter's fee and the PEP's interest in the company, obtain senior management approval for the relationship, and apply enhanced ongoing monitoring.

Key points:

• Tax evasion is a criminal offence. If, having done the work, you form a suspicion that the claim involves false or inflated figures intended to obtain relief fraudulently, you must report to your firm's MLRO, who will consider a suspicious activity report to the NCA.
• Do not tip off. You must not tell the client or the promoter that a report has been made; that constrains how you explain your refusal to sign.
• Record keeping. Keep the due diligence, the promoter's engagement terms, your technical assessment and the reason for your decision for at least five years. This is directly inconsistent with the request to keep the fee arrangement off the file.
• Escalation and exit. Document your advice in writing, escalate internally, and if the client files a claim you believe to be dishonest, consider ceasing to act and whether any continuing obligation arises in respect of the existing engagement.
• Firm-level risk. A 20% success fee on a £2.4m claim, a promoter-written narrative and a request to conceal documentation together raise the client's risk rating regardless of the technical merits. Update the risk assessment accordingly.