A leading R&D tax credit specialist, randd UK, has said that the case of H&H Scaffolding Ltd may bring some peace of mind to those who have used R&D tax agents in the past who fear penalties from HMRC for inaccuracies.
H&H Scaffolding Ltd was charged a penalty of £6,632.01 for a careless inaccuracy in its Corporate Tax return, due to an illegible claim.
The firm of scaffolders had relied on the expertise of an established R&D tax agent, Legal Rooms, who they believed were reputable at the time of instruction having met with them at several events run by the NASC (the national professional body for scaffolders).
They were aware of other NASC members who had used their service and provided full and accurate facts. They submitted their return as per the instructions of Legal Rooms and, therefore, believed that their claim was accurate and compliant.
The First-tier Tribunal (FTT) in the case of H&H Contract Scaffolding Ltd [2024] TC 09082 decided that no penalty for ‘carelessness’ was warranted when HMRC rejected an R&D claim upon review.
The FTT determined that the burden of proving a careless inaccuracy rested with HMRC, and the mere inability of the taxpayer to substantiate a relief claim during review did not signify carelessness.
Regarding the case itself, the FTT concluded that the taxpayer had sufficiently demonstrated, on a balance of probabilities, that they had exercised reasonable care to prevent inaccuracies.
Ryan Sian, Managing Director of randd UK has responded to the findings of the case. He said “This is a clear example of HMRC ‘assuming’ they are correct and thinking the courts will support their decisions when in actual fact, the law is very clear and to the contrary. The tribunal has rightly upheld the existing interpretation of the law.
“It is up to HMRC to ‘prove’ the appellant has been careless, not assume they must have been careless since there was an inaccuracy in their tax affairs.”
“This is important in the context of R&D Tax Credits, in our opinion, since it is HMRC themselves, who many experts argue, are the primary reason that such levels of inaccuracies exist at a wholesale level due to the ambiguity of the R&D tax rules and processes.”
The team of R&D experts at randd have been campaigning amongst peers for some time about HMRC’s need to police the scheme more effectively.
It is in part due to their lack of action that cases like this have arisen, with matters only being addressed in the last year by the sudden and wholesale reform of the R&D tax credit scheme.
randd say that the final words of the judgement are pretty clear: “The Tribunal does not accept the Respondents’ [HMRC’s] case … . Ordinarily it is for the Respondents to prove a careless inaccuracy, not for the Appellant to establish a “reasonable excuse”. If the Respondents wished to rely on para.18 Sch. 24 FA07 being engaged such that the burden of proof was reversed they both could, and should, have made that clear, but they did not.”
“The Tribunal does not accept the Respondents’ case that where the taxpayer cannot show that it qualified for a given relief then it follows that the taxpayer will have been careless since that would entail the mere existence of an inaccuracy determining that the same inaccuracy was careless.
“In the absence of the Respondents setting out any other case on careless inaccuracy, and in the absence of the Respondents taking specific issue with the assertions made out in the Appellant’s Grounds of Appeal …, the Tribunal is not prepared to conclude that what the Appellant has said in them is inaccurate.”
Ryan Sian, concluded: “We believe it isn’t fair for HMRC to impose penalties on companies who have legitimately thought they were making a valid claim via an R&D agent.
“Having to pay the Corporation Tax due plus any interest back is enough in these cases and HMRC should feel satisfied that they are recovering this revenue back for the Treasury, but nothing more.”
