In MW High Tech Projects UK Limited v HMRC [2023] TC09011 a company was unable to make a valid claim for a Research and Development Expenditure Credit (RDEC) as it had failed to prepare accounts on the 'going concern' basis.
- The company filed accounts in 2017 and 2018, stating that it was not a 'going concern'.
- Its Corporation Tax return for 2017 included a claim for a Research and Development Expenditure Credit (RDEC) of £1,934,343.19.
- HMRC paid the claim but subsequently opened an enquiry into the claim and denied it on the basis that as the company was not a going concern it was not entitled to RDEC.
- By the time HMRC had denied the claim the company was out of time to amend its accounts and returns.
The company appealed to the First Tier Tax Tribunal (FTT). The basis of its grounds for appeal were that the company was actually a going concern and the accounts were signed off in error, there were errors in the R&D rules that should be taken into account and HMRC had deliberately opened its enquiry late.
The FTT heard a lot of evidence on accounting and auditing standards and found that the director, following discussions with its auditors, knew what he was signing when he signed off the accounts (they say not a going concern in eight places) and, the accounts had been prepared according to the relevant accounting standards.
S 104S(3) provides that a claimant is entitled to RDEC where: (1) it was not a going concern on the date the claim was made, but (2) became a going concern “on or before the last day on which an amendment of the company’s tax return for the accounting period could be made” under FA 2018, Sch 18 para 15.
The critical factor in the appeal was that the company would only be entitled to the RDEC if it satisfied s 104S(5). This provides that a company is entitled to the credit if it becomes a going concern on or before the last day on which it could amend its CT return.
The FTT found that:
(a) The 2017 accounts were received by Companies House on 1 April 2019.
(b) The Appellant claimed the RDEC in its 2017 CT return which was filed on 4 April 2019.
(c) On that date, the “latest published accounts” were those for the year ended 30 December 2017, and those accounts had been filed on the basis that the Appellant was not a going concern.
Looking at filing dates:
(a) The filing date was “twelve months after the end of the period for which the return was made”, so 30 December 2018.
(b) The last day was 12 months after the filing date, so 30 December 2019.
(c) On that date, the Appellant’s latest published accounts were those for the year to 30 December 2018, which were not on a going concern basis.
After finding that there was no error in the legislation that affected the underlying RDEC rules, the FTT confirmed that it had no jurisdiction as to when HMRC should open an R&D enquiry, and that there were no applicable statutory concessions such as a type of Overpayment relief that could alleviate the company’s problem,
The appeal was dismissed.
Useful guides on this topic
Research & Development Tax Reliefs
What is R&D Relief? How does it work? Why does the size of the company matter? What is sub-contracted R&D? How do I write an R&D Report?
R&D Zone: Take a tour
Research and development (R&D): introducing the R&D Zone. R&D Zone aims to provides you with practical know-how and support in putting together an R&D claim.
R&D: SME Tax Credit scheme
What Research & Development (R&D) schemes are available for small and medium-sized companies undertaking R&D? How to make an R&D claim? What are the qualifying costs and how much can be claimed?
R&D: 'Large company' RDEC scheme
What is the R&D Expenditure Credit (RDEC) Large Company Scheme for R&D relief? How does it work?
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