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FTT Upholds R&D Tax Relief Appeal

Thursday 29th May 2025

The FTT has upheld a taxpayer’s appeal in a research and development tax relief case, which has clarified HMRC’s authority in relation to discovery assessments and relevant time limits.

In Realbuzz Group Ltd v HMRC [2025 UKFTT 00493 TC], the taxpayer appealed against a discovery assessment issued on 1 June 2023 disallowing a R&D tax relief claim for £335,452.57 for the accounting period ended 30 April 2020 which was made in an amended CT return received on 31 March 2021.

The taxpayer subsequently filed its 2021 CT return on 13 July 2021 and HMRC opened an enquiry into that return, which also included a claim for R&D relief, on 17 September 2021. In response to HMRC’s questions, the accountants for the taxpayer submitted an R&D report for the 2021 AP to HMRC in November 2021.

The 2021 report was similar in format to the 2020 Report which had referred to a number of projects which had begun in 2019. The 2020 Report had been prepared after extensive discussions with the taxpayer’s technical team, an assessment of the individual projects undertaken in the period to ascertain whether they qualified for R&D relief having regard to the tax legislation, the BIS Guidelines and HMRC’s published guidance in their manuals.

In April 2022, HMRC wrote to the taxpayer stating that most of the projects did not fall within the definition of R&D for tax purposes. The taxpayer was invited to explain why they thought that the projects which they had rejected in fact qualified, after which the opinion of HMRC’s software specialists would be obtained.

The sole ground of appeal was that HMRC were not entitled to raise the discovery assessment as an officer “could have been reasonably expected, on the basis of the information made available to him, to have been aware of the excessive relief before he ceased to be entitled to give notice of enquiry” into the 2020 return. 30 April 2022 was the last date for HMRC to open an enquiry into the 2020 AP return.

On 8 March 2023 HMRC closed the enquiry into the 2021 return denying the R&D claim for the 2021 and reduced it to nil. In the same letter, HMRC said they were considering raising a discovery assessment for the 2020 AP on the basis that some of the 2021 projects began in 2019 and so believed that the inaccuracies identified in 2021 would also have occurred in 2020 as R&D relief had been claimed in the earlier period on the same or similar projects and on the same basis as in 2021.

The discovery assessment was issued on 1 June 2023, well after the deadline of 30 April 2022 relating to the 2020 AP.  The taxpayer appealed the assessment on 30 June 2023 and, following a review which upheld the original decision, made an in-time appeal to the FTT on 30 November 2023.

The FTT considered each of the projects covered in the 2021 report, with reference to the legislation in CTA 2010, and para 44 Sch 18 FA 1998 in respect of discovery assessments.

The FTT also examined relevant case law in determining the necessary level of the officer’s awareness, with reference in particular to the cases of Fisher, Veltema, Lansdowne, Sanderson and Beagles.

On issues of quantification and complexity, the FTT concluded that the hypothetical officer would have been aware that there was an insufficiency of tax because the claim for R&D relief was excessive. It would have been obvious that some projects/sub-projects did not qualify even if others might have. As there was a single inaccuracy being a single excessive claim for relief, the hypothetical officer only had to conclude that the claim was excessive, he did not have to conclude that the entire claim was non-qualifying. Nor did he have to quantify the amount of the insufficiency of tax.  That was for the actual officers to decide based on all the information available to them.

Accordingly, the protection provided by paragraph 44(1) was available to the taxpayer and HMRC were not able to raise a discovery assessment by reference to the APE 2020 claim for R&D relief.

With regard to whether the 2021 Report was “information available” in relation to the 2020 claim, the taxpayer contended that the 2021 Report was “information made available” to the hypothetical officer and was an additional document which made the officer “aware” of the insufficiency in the APE 2020 tax return. The 2021 Report contained nothing new in relation to the 2020 claim. The difference was that HMRC opened an enquiry into the 2021 claim which was challenged in April 2022. The taxpayer argued that this should have alerted HMRC to the insufficiency in APE 2020, as there was an overlap in projects.

The FTT held that the 2021 Report was not information relevant to an insufficiency in tax for the 2020 AP, but did decide the hypothetical officer should have been aware at the latest date for opening an enquiry of the excessive claim for R&D relief and the consequent insufficiency in tax. Accordingly, HMRC was not entitled to raise a discovery assessment for the 2020 AP and the taxpayer’s appeal was allowed.

If you would like more detail on the above decision, please contact Keith Rushen on 0207 486 2378.

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