In Tills Plus Limited v HMRC [2024] TC9235, a company's director failed to provide sufficient detail that his company's project met the definition of R&D. There were unusual payment arrangements with a subcontractor in Iran and the claim was rejected by the tax tribunal.
- The company claimed to have incurred Research & Development (R&D) expenditure of £2.5 million on subcontracted costs for the financial years 2018 and 2019.
- Under its usual 'pay first, check later' policy, HMRC paid the company and then later, enquired into their claim before rejecting it.
- HMRC issued Closure Notices, to recover £390,000 in tax credits.
The company Appealed HMRC's decision to the FTT.
The FTT heard that the company claimed relief for Subcontracted R&D costs but had not directly paid any subcontractors. As a result, HMRC were unable to conclude that R&D activity had taken place.
The company thought it was appealing the issue of whether payment was made, not whether there was a valid R&D project.
The FTT decided that the two were completely linked in HMRC's Closure Notice and the question was on whether there was a valid R&D claim.
In respect of the payment of the claimed costs:
- The company's sole director, Mr Kosari explained that the R&D work was undertaken in Iran. As cash could not be paid or transferred between the UK and Iran, the director’s father, who was resident in Iran had paid the company's subcontracted R&D invoices.
- The amount paid by the father was then treated as a loan from father to son.
- The director then loaned that amount to the company: so that the effect was that the company had incurred the cost.
The FTT decided that what is required is that an obligation to the sub-contractor be discharged at the cost or expense of the company. That had happened, therefore the company had incurred the relevant expenditure.
The FTT turned to the evidence as to whether there was a valid R&D project.
The company’s evidence proved unsatisfactory. It had only decided to appoint a legal council days before the hearing and failed to produce a competent professional to help the claim as an expert witness.
The company's director gave evidence and had to rely on a downloaded CV to prove the expertise of its subcontractor.
What the director claimed was R&D differed from that described in letters to HMRC.
The FTT found that it was unable to show that it had a project which was going to achieve an advance in science or technology through the resolution of scientific or technological uncertainty.
The company’s claim was dismissed.
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Need assistance with an R&D Claim?
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External link
Tills Plus Limited v HMRC [2024] TC9235
