R&D tax claims specialist, randd uk, has urged caution among businesses claiming tax relief on R&D, following a First Tier Tribunal case, which cost a tech company more than £650,000.
The case concerned the claimant, Tills Plus – an organisation in the hospitality sector – that was ordered to repay £390,000 in R&D tax credit.
The company also missed out on an expected further sum of £275,000, which had not yet been paid by HMRC.
The decision followed a First Tier Tribunal on two points relating to the claim, said randd uk.
The first was whether payment made to subcontractors via an intermediary met the criteria for qualifying expenditure, which the claimant successfully argued in the affirmative.
However, the claimant ‘s claim was ultimately denied based on inconsistencies in the evidence provided alongside the claim, despite the value of the claim having already been paid out to the company.
rannd uk identified a number of recurring issues for firms present within this case.
Adam Bointon, Technical Director at randd uk, said: “One of the major issues with this case, certainly for Tills Plus, is that one of the high-value claims had already been paid out, and was investigated on a post hoc basis.
“This has long been a problem, but it appears to be HMRC policy.
“If companies wanted to be “safe”, they would have to keep the relief in a bank account for 12 months – until after the enquiry window had closed. However, this seems to defeat the purpose of the scheme to help fund innovation.
“If HMRC could recognise problems earlier (which given the size of this claim, it should have rung alarm bells) they could avoid this scenario.”
The Derby-based firm also cautioned potential R&D tax relief claimants to ensure they have a firm grasp of HMRC’s guidance – or that they’re working with an accountant who does.
“Having the right evidence is more important than ever,” said Adam. “HMRC will not approve a claim if claimants cannot show that the R&D work actually took place, or if evidence is shaky.”
“These forms of dispute over claims common in the enquiry process, which has stepped up recently and may now include claims that would have flown under the radar.
“HMRC case officers will explore all angles, from “is it R&D for tax purposes” through to “have you actually paid and incurred the expenditure”. On the expenditure front, it can be quite nuanced – it is easy to place expenditure through accounts in an accrued fashion, but not actually pay anything (Director’s loan/pensions for example).
Finally, randd uk found that the case, although overshadowed by the repayment of substantial sums based on inconsistent evidence, set an interesting precedent for the R&D tax sector.
“The remarkable aspect of the claim is actually the payment through an intermediary.
“The claimant used the ‘credit card’ analogy – that when you pay for something with a credit card, you have still made that payment, even though the actual payment to the third party is made by the credit provider.
“This sets a precedent and makes HMRC’s stance on B2B payments through an intermediary clearer for those making future claims.”