Further defeat for HMRC
Hot on the heels of the decision in the First-tier Tribunal (Tax Chamber) between Collins Construction Ltd and HMRC published on the 21st of October, HMRC have suffered another defeat in the Stage One Creative Services Limited case. This now means a tribunal judge has not agreed with HMRC on their interpretation of subcontracted/subsidised expenditure for the following cases:
1)Quinn (London) Ltd v HMRC [2021] UKFTT 437 (TC)
2)Collins Construction Ltd v HMRC [2024] UKFTT 951
3)Stage One Creation Ltd [2024] UKFTT 001059 (TC)
In a similar vein to the previous two cases, Tribunal Judge Anne Scott commented ““When agreeing a price, in order to attain its preferred profit margin, SOCS will have factored into the quotations or tenders its estimates for costs such as labour, materials and expenditure on R&D. Those estimates can be incorrectly costed or the scale of the technical difficulties or complexities underestimated. Where SOCS is responsible for design it is responsible for any flaws in the design. In all of the projects SOCS takes responsibility for materials and workmanship. It is a fixed cost and SOCS do not agree to carry out R&D per se. The clients will not necessarily know if R&D is required or, if it is, the extent or cost thereof. In his witness statement, Mr Leigh gave a colourful analogy that the client wanted the “picture on the jigsaw box, but has no interest in putting the puzzle together”. The clients did not instruct SOCS as to the order in which the pieces go together and SOCS is not rewarded for the way in which the puzzle is solved. SOCS is simply “rewarded for delivering a completed puzzle that matches the picture on the box”. Mr Leigh’s evidence was very clear to the effect that “…its only often when you are in the belly of the project that you realise the level of technical challenge that you face”. We accept that.”
Furthermore, in addition to the previous two cases, Judge Scott concluded that, whilst the 'no change in approach' view has been held at HMRC policy level, this wasn't the case at the operational level where both industry professionals and HMRC officers followed the 'old' CIRD guidance. She found that the HMRC operational view changed in late 2019 and that this change did in fact represent a change of practice generally prevailing.
R&D advisers now await to see if HMRC will appeal the latest two rulings made in the Collins Construction and Stage One Creation cases. The more likely scenario is that these will be ignored as they are not legally binding and we move towards the Merged Scheme where this point of contention will no longer be relevant. If this article has affected your R&D claim or you have any questions please ring our team today on 0345 450 0505.
Link to the full case: https://lnkd.in/ed7ciJUG
