FTT decides against taxpayer in relation to R&D tax credits
Decision highlights potential pitfalls that claimants should be aware of when preparing R&D claims and responding to HMRC enquiries
Decision highlights potential pitfalls that claimants should be aware of when preparing
In Tills Plus Ltd v HMRC the First-tier Tribunal (FTT) has found in favour of HMRC in respect of a software development company that HMRC argued was not entitled to research and development (R&D) tax credits.
The decision focused on two matters: firstly, whether the company had in fact met the ‘paid’ requirement in relation to contracted out R&D expenditure, and secondly, whether the expenditure in fact related to eligible R&D activity.
HMRC argued that expenditure where payments were not made directly by the claimant, had not been ‘paid’ for R&D claims purposes and therefore were non-qualifying. The FTT found that, whilst physical payment had been made by a third party on behalf of the claimant, the company had nevertheless ‘discharged an obligation’ to the contractor to its cost.
Despite this, the FTT permitted HMRC to raise a further argument (agreeing that HMRC was not restricted to the conclusions set out in the closure notice), that the expenditure did not relate to eligible R&D activity.
The FTT agreed that it did not on the basis that:
- The claimant’s previous correspondence and FTT evidence did not provide a consistent view on what the actual R&D activities were that had taken place. This inconsistency resulted in the Tribunal questioning whether the activities constituted R&D, highlighting the importance of providing a consistent message on R&D activities; and
- The taxpayer tried to initially answer HMRC’s questions from a non-technical and commercial perspective, without involving the technical specialists i.e. the ‘competent professionals’ (per the R&D Guidelines). This ultimately resulted in conflicting views being presented to HMRC compared to more technical evidence submitted by the claimant in later correspondence. This case highlighted that the competent professional must play an essential role in the R&D claim process, and there is a need for them to understand the R&D Guidelines, assess whether the project is eligible for R&D tax incentives accordingly, and be able to explain and document the reasons why it is considered eligible and what qualifying work was done in the claim period.
It is always advisable that companies engaged in an enquiry or and any dispute resolution process seek professional support where appropriate. KPMG’s R&D tax team includes a range of experts from software and technical to tax and legal. We support clients to prepare robust R&D claims and documentation, and to respond to HMRC enquiries. Please speak to the authors or your usual KPMG in the UK contact if you would like any assistance with R&D claims.
