In Realbuzz Group Ltd v HMRC [2025] TC09502, the First Tier Tribunal (FTT) allowed an appeal against a discovery assessment raised in respect of a Research & Development (R&D) claim. At the end of the normal enquiry window, the hypothetical HMRC officer should reasonably have been aware of the excessive R&D claim, which resulted in an insufficiency in tax.
Realbuzz Group Ltd (RGL) submitted their 2020 Corporation Tax (CT) return with a claim for Research & Development (R&D) relief totalling £335,453.
RGL then submitted their 2021 CT return with a further claim for R&D relief. HMRC subsequently opened an enquiry into the 2021 return after it became apparent that the projects did not fall within the definition of R&D for tax purposes.
- HMRC closed the enquiry into the 2021 CT return, denying the R&D relief.
- The officer dealing with the enquiry highlighted to RGL that she was considering raising a Discovery assessment on the basis that some of the 2021 projects began in 2019, which led her to believe that the same inaccuracies that occurred in 2021 would have also occurred in 2020.
- RGL's 2020 CT return was submitted along with an R&D report outlining ten different projects which were considered to qualify for R&D relief.
- The company did not appeal the 2021 decision but raised an appeal against the 2020 discovery assessment.
There were two grounds for the appeal:
- An HMRC officer is only allowed to raise a discovery assessment if they could not have been reasonably expected, on the basis of the information made available, to have been aware of the error when it arose during the normal enquiry window. RGL did not believe HMRC met this criterion when raising the assessment.
- What constitutes the 'information made available'.
The First Tier Tribunal (FTT) found:
- The hypothetical officer would have been aware that a loss of tax had been suffered during the normal enquiry window due to the fact R&D claim itself was excessive.
- Although one claim was submitted covering the ten projects, it would have been obvious that some projects qualified and some may not have.
- The hypothetical officer needs only to conclude the claim was excessive; there is no requirement to quantify the tax loss at that point.
- Only once all the information is made available to the officer is it possible to quantify the loss of tax.
- RGL's position was that there is only one inaccuracy and potential tax charge; it follows then that relief had been given which is or has become excessive and that an assessment to tax has become insufficient as detailed in Finance Act 1998, para 44(1).
- The hypothetical officer, therefore, should have been aware that a tax loss had been suffered when the excessive claim was first discovered.
RGL also contended that the 2021 R&D report constituted 'information made available' to the hypothetical officer, information which should have made the officer aware that a loss of tax had occurred at that time.
The FTT made it clear that:
- Although the 2021 report certainly contained information that would have assisted the officer, it was not clear from the report alone that there was a loss of tax.
- It concluded that the availability of the 2021 report did not mean HMRC had sufficient information available to them, although it may have raised suspicion of an error; the document alone could not be deemed 'information made available' to the hypothetical officer.
The appeal was allowed.
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: Research & Development Expenditure Credit (RDEC)
What is the R&D Expenditure Credit (RDEC) Large Company Scheme for R&D relief? How does it work?
R&D Zone: Do I have a valid R&D claim?
Do I have a valid R&D Claim? What conditions do I need to meet? What form of relief can I claim?
Discovery Assessments
When can HMRC issue an assessment outside of the normal statutory time limits? What conditions must be met? Can HMRC issue two alternative assessments for the same period? What are your rights of appeal and defences?
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