Tribunals are an option for any tax payer who believes the judgements made in relation to their tax affairs are
not correct. They also in some circumstances establish case law which may change the way HMRC handle the
tax matter the tribunal relates to. On that basis it is always of interest to examine the result of a tribunal
involving an R&D Tax Credit claim.
The latest involves Teksolutions-Inc Limited TC/2018/00696 and was released on the 7th of November. Full
details available for download below.
In my view this decision has no broader implication for R&D claims in general as it simply enforced the
understood. The ruling does not set any new precedent or case law.
The issue was “whether claimed expenditure evidenced”.
A brief read through suggests (I am purely given an opinion on the publicly available ruling) costs were claimed as R&D expenditure which did not show clearly in the company accounts, and which the company could not support with invoices, receipts, or bank records, to the satisfaction of the court. This tribunal appears to relate to basic record keeping requirements that are part of accountancy and the obligations of any Company Director. It does not form an opinion about any specific R&D Tax Credit related matter other than reinforcing what is well known by professionals operating the field. HMRC did say if they lost the tribunal they reserved the right to enquire about other aspects of the claim. I would assume this to be about the nature of the projects in respect of qualification.
The key known accountancy issue highlighted in this case is:
- An obligation to keep good accounting records from which accounts can be prepared which give a true and fair representation of the financial position of the company. This appears to not be the case here as costs claimed could not be shown in the accounts or evidenced through invoices or bank records.
The key known areas relating to R&D claims where the appellant could not make a case are:
- CTA09/S1044(5) & CTA09/S1063(4) in CIRD81450. ” The statute provides that, to be eligible for relief, expenditure within the qualifying categories must have been allowable as a deduction in computing the profit of the trade for which the R&D is relevant.” It appears the expenditure could not be shown to be in the accounts therefore did not impact the P&L. SME R&D claims involve an additional deduction often called an enhancement of the qualifying expenditure. The view here appears to be that no expenditure could be shown to exist to enhance hence no R&D claim. You can only claim costs you can prove you incurred and are in the company accounts.
- The issue of deferred/accrued payment is also mentioned around staff and subcontractor costs. It should be well known, Payment CIRD82100, that to claim any qualifying category of expenditure that the amount actually has to have been paid. This was in itself the subject of a tribunal ruling where interestingly while HMRC won they did not adopt the harsher interpretation of the judge that a claimable expense had to be paid in the claim year. It simply has to be paid before an R&D claim is made. An R&D claim cannot be made in essence on credit.
Tribunals and HMRC enquiries are expensive undertakings. This claim has resulted in zero benefit to the claiming company and a large fine. I would advise anyone making an R&D claim to get advice from someone with experience and knowledge about R&D claims in order to claim within the guidelines and legislation. We do undertake enquiry work on claims where we have not initially been involved. But we only do so if we think on the balance of probabilities a case can be defended. It is hard to see how on a very basic level the matter raised at the tribunal could result in any outcome other than stated in the judgement.
Christopher Toms – Technical Director RandDTax