In AHK Recruitment Ltd v HMRC [2020] TC7718, the First Tier Tribunal (FTT) denied claims of SME Research & Development (R&D) relief. The conditions for relief were not met as there was no evidence of an advance in science or technology.

Small to Medium-Sized (SMEs) can claim R&D Tax Credits when they incur costs on qualifying R&D projects and obtain an uplift on these costs.

  • R&D is defined by general accounting practice but modified by the 2004 Department of Trade and Industry (DTI) guidelines.
  • There must be uncertainty that the final objective can be achieved and an advance in science or technology through the resolution of scientific or technological uncertainty.
  • The DTI guidelines exclude from the definition of science, 'work in the arts, humanities and social sciences'.

AHK Recruitment Ltd (AHK) was a provider of human resource services and systems, including those relating to the recruitment of new employees.

  • It claimed SME R&D relief for the periods ending 31 December 2014 and 2015.
  • The projects claimed for involved behavioural research for use in psychometric testing in recruitment.
  • During HMRC enquiry, AHK clarified that the claims were for the development of technology for an online product. The original documentation submitted with the claims did not mention this.
  • AHK then stated that the claim related to software development for intellectual property it owned.
  • A project summary was eventually provided to HMRC along with revised claims. This stated that the aim was to enhance existing recruitment software by embedding data mining, scraping and machine learning into the process, for example by taking data such as profiles from social media to allow the framework to be more intelligent.
  • HMRC considered that this was not an adequate project description of R&D activity as there was no evidence of any advances in science or technology, and disallowed the claims for relief. AHK appealed.

The FTT agreed with HMRC, dismissing the appeals. AHK had not provided evidence to prove that:

  • The technology it sought to develop was not already readily available and amounted to an advance in technology and, specifically, amounted to more than “routine…copying or adaptation of an existing product [or] process…”
  • There were technological uncertainties which a competent professional working in the field could not have readily resolved.

At the hearing the company’s R&D advisers claimed the technology was not already available, there was such an advance, and there were such uncertainties. No evidence was provided by anyone at the company.

The FTT dismissed these claims as the advisers were not experts in the field and had not worked on the project at the relevant times. They also questioned the evidence provided to show that the company had a competent professional working on the project, saying that simply asserting that an employee was 'competent through experience' and providing a brief resume was not sufficient. The judge found it remarkable that AHK had not provided evidence to the court from someone contemporaneously involved in the project and/or from someone with relevant expertise.

The judge went to say that even if R&D had been undertaken, AHK had failed to prove that the costs included in its claims related to the R&D.


This case is a reminder of the importance of proving to HMRC that a project and the costs incurred thereon meet the criteria for R&D relief. The DTI guidelines have been in operation for many years now without significant change and should not be overlooked when assessing and making claims for R&D relief.


R&D Tax Relief: Overview
R&D Relief is a Corporation Tax relief. There are two schemes for claiming relief, depending on the size of the company or organisation: the SME scheme and the large company scheme.

R&D: SME Tax Credit scheme
What Research & Development (R&D) schemes are available to companies undertaking R&D? How to make an R&D claim?

R&D: Advance Assurance
HMRC have introduced an Advance Assurance for companies that claim Research and Development (R&D) tax relief. 

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AHK Recruitment Ltd v HMRC [2020] TC7718