UK and International Tax news

FTT Agrees With HMRC In R&D Tax Claims Case

Tuesday 2nd February 2021

The FTT has recently heard an appeal in a case involving enhanced R&D corporation tax deductions relating to seven engineering projects.

In Hadee Engineering Ltd v HMRC [2020] UKFTT 497 (TC), the FTT considered appeals against two closure notices issued by HMRC after it refused the Appellant’s claims for research and development relief made under the Small and Medium sized Enterprise (“SME”) Scheme which included enhanced expenditure of 75%.

The Appellant’s original CT returns for 2009 and 2010 did not contain any claims for enhanced R&D expenditure.  Subsequently the Appellant submitted amended returns claiming enhanced R&D CT deductions of £300,000 together with a Research and Development Report which had been prepared by the Appellant’s R&D advisers. However, the adviser did not assist the company with HMRC’s enquiries even though it had prepared the claims for the company. HMRC had concluded that the company had not proved that any of the expenditure satisfied the tests to be classed as R&D as set out in CTA2009.

The FTT considered each of the projects in detail and, except in the case of one of the projects, agreed with HMRC and found that the conditions for relief were not met. With respect to the seventh project, the taxpayer’s appeal was allowed subject to the parties reaching an agreement on the correct amount of the claim.

This decision shows the importance of a claimant being able to correctly identify the precise nature of the R&D activities in a project and the qualifying R&D costs associated with it.

With the dramatic increase in the number and value of SME R&D tax claims in recent years, HMRC are looking much more closely at submitted claims as well as through their advance assurance application process which allows companies to submit details of their R&D activities in advance of claims.

In the advance assurance application, applicants need to provide clear details of the R&D activities to be undertaken, the scientific or technological advances being sought, the scientific or technological uncertainties involved and how they plan to deal with these uncertainties.


If you would like more detail on this decision or HMRC’s advance assurance application, please contact Keith Rushen on 0207 486 2378.

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