Get On Board vs. HMRC and Tills Plus vs. HMRC
Both these cases have been decided by the First Tier Tribunal (FTT) in the past month and whilst the outcome for the taxpayers were opposite there are common points we can take from both. Get On Board (GOB) were able to successfully defend the legitimacy of their claim. Till Plus (TP), whilst they were able to have the FTT agree that subcontracted costs did not have to be met by the company directly to be included in a claim they were not able to show that what they undertook was an advancement. We will analyse some the of the key takeaways from these cases and what we can learn that will help with future R&D claims.
Takeaways
Both companies were engaged in software development and both cases help to clarify what will be seen as an advance. GOB were able to show that in all software projects there will be some element of existing code reused and utilising existing technology does not negate a project’s novel nature. In this case they were also able to show that a lack of comparable functionality in the wider market can aid the argument that there was a not readily deductible solution available. In the context of their project it meant there was a technological uncertainty about whether they could achieve their holistic solution to KYC(know your customer) and risk profiling did more than just automate a labour intensive project.
In contrast, TP were unable to show that its project did anything more than take existing technology and combine them into an integrated system. TP were unable to show how this resolved any scientific or technological uncertainties. In the GOB case the Tribunal thought that this was a case where the competent professional had done enough to show that there was a technological advance, and as such if HMRC are not convinced then there is a shifting of the evidential burden. In these instances it is then on HMRC to evidence and cite experts in their reasoning as to why the claim does not meet the necessary criteria for a technological advancement.
In their guidance HMRC define a competent professional as ‘someone suitably qualified or experienced in the field. Usually this is someone directly involved in the project with professional expertise relevant to the advance being sought’. One of the key takeaways from the GOB case was that a competent professional does not need any formal qualifications in the relevant field. HMRC had tried to cast doubt on the competent professional and the claim’s merits for GOB, as they had not opted to identify their key software developer as the competent professional. GOB’s competent professional was able to show industry expertise, a good technical understanding and the ability to articulate the principles and novelty of the project, which was demonstrably good enough to be a competent professional.
TP in contrast could not call upon an impressive competent professional during their hearing, at the hearing there was only the company’s director and he could not answer queries on a technical level. Even though the FTT accepted that one of the reports submitted represented an advancement, there was no competent professional present to reconcile the inconsistencies or support the overall work being R&D.
One of the key takeaways of the TP case is how important the fundamentals of preparing an R&D claim are. The inconsistencies in what they had told HMRC undermined the element report that showed legitimate R&D work and with no competent professional at the hearing the directors attempts to explain and mitigate the differences failed. TP were quite unprepared for the hearing as they had only appointed legal counsel days before the hearing and had to rely on a downloaded CV to show the expertise of its Iranian subcontractor which again highlights the need to be prepared throughout the process of an R&D claim.
Summary
What each of the cases identifies is the importance of ensuring that the criteria relating to R&D Tax Relief is accurately met and detailing from the initial report to HMRC how the criteria is met. Also, ensuring that the Competent Professional can be identified and relied upon should HMRC have any queries is also vital to ensuring a successful claim is made to HMRC.
We would be more than happy to support you with a claim should you believe that you have qualifying activities.
