UK: Taxpayers must demonstrate scientific or technological advancement in R&D tax relief claims (First-tier Tribunal decision)
Mere commercial and operational improvements to taxpayers’ own activities do not suffice.
The First-tier Tribunal held in Environmental Services Ltd v HMRC [2026] UKFTT 1301 (TC) that the taxpayer was not entitled to research and development (R&D) tax relief because it did not demonstrate that its projects sought an advance in overall knowledge or capability in a field of science or technology.
The tribunal acknowledged that the taxpayer had undertaken innovative work involving experimentation and practical problem-solving, and that the individual responsible for the technical work was a sufficiently experienced and knowledgeable “competent professional.” However, the tribunal found that the taxpayer’s projects represented mere commercial and operational improvements to the taxpayer’s own activities.
KPMG observation
The decision highlights that trial and error, commercial ingenuity, and operational or competitive advantage do not, by themselves, constitute qualifying R&D. It also reiterates the importance of retaining contemporaneous evidence, linking qualifying expenditure to eligible activities, and confirming the requirement for assessments made by a competent professional that clearly identify each project’s relevant field of science or technology, the baseline knowledge or capability, the advance sought, and the scientific or technological uncertainties encountered.
Read a September 2026 report prepared by the KPMG member firm in the UK