UK R&D tax incentives: FTT decision in a climate of increased scrutiny

The decision highlights the burden upon claimants to ensure that R&D tax incentives claims are capable of withstanding HMRC scrutiny

Highlights the burden upon claimants to ensure that R&D tax incentives claims are capable


The First-tier Tribunal (FTT) recently handed down judgment in the case of Flame Tree Publishing Ltd (FTPL) v HMRC. The FTT’s decision found emphatically in HMRC’s favour, rejecting the claimant’s appeal against HMRC’s previous decision to deny tax relief. The decision highlights the burden upon claimants, and their advisors, to ensure that R&D tax incentives claims are capable of withstanding HMRC scrutiny and reiterates the required level of rigor in the claim preparation process, and the documentation to be retained, in order to meet HMRC’s standards.


FTPL claimed R&D tax incentives in respect of c£200,000 of R&D expenditure, leading to a reduction in Corporation Tax (CT) of c£50,000. After enquiring into the claim made, HMRC rejected the claim in full and issued a closure notice requiring repayment of the CT reduction. Flame Tree appealed to the FTT, which the FTT has now dismissed with “no hesitation”.

The FTT’s view identified a number of fundamental flaws in FTPL’s claim, which provide a timely reminder of some of the common pitfalls in unsuccessful claims:

  • In the FTT’s view, FTPL’s ‘competent professionals’ responsible for the assessment of R&D eligibility could not properly be described as such for the purposes of the claim. Having ‘some knowledge’ as a ‘business owner’ or similar is insufficient. The assessment must be made by an individual with expertise in the relevant field of science or technology, as evidenced by relevant experience, skills and qualifications;
  • The FTT found that the advancement in technology sought by FTPL was not one in the overall knowledge or capability in the particular field (as the guidelines require) and in comparison to the technological baseline at the outset of the project, but was merely an advancement of FTPL technological capabilities as a standalone company;
  • The FTT took particular issue with FTPL’s assessment of R&D eligibilities and apportionment percentages for individual employees, based upon their time spent on R&D activities, with little or no rationale or supporting documentation as to how each percentage was arrived at; and
  • Finally, the FTT found that the claimant failed to provide evidence for the quantum of the claim, highlighting the need for claimants to retain appropriate documentation as evidence that the sums claimed were actually incurred.

Key Conclusions

The case highlights the risks of failure to prepare R&D claims to the standards that HMRC expect, and especially so in a climate of increased HMRC scrutiny of R&D claims. Ultimately, whilst the case does little to suggest fundamentally new approaches from HMRC or the tribunal, it does offer a cautionary tale for claimants and advisors. In particular, it highlights the need for legislation-focused and risk-based approaches to the making of R&D assessments, the importance of appropriately experienced and qualified competent professionals in making those assessments, as well as strong documentary evidence to support claims in the event of HMRC enquiry.

KPMG: Innovation Reliefs and Incentives

The Innovation Reliefs and Incentives (IRI) team at KPMG in the UK assists claimants to prepare robust, well-optimised R&D tax incentives claims across various industries and claimant sizes. Please contact the team for further information on how we can help you.