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H was the director of the taxpayer company G and also of an associated company LH which used to be a wholly owned subsidiary of G.
H carried out research and development work for the taxpayer company on behalf of LH.
His salary was paid by LH which G repaid on receipt of an invoice. The taxpayer company paid corporation tax claiming research and development relief in respect of the H’s work on the basis that it was entitled to do so as a small or medium-sized enterprise (FA 2000 Sch 20).
HMRC denied the relief because H’s salary had been paid by LH. The taxpayer company appealed to the General Commissioners. They turned down the appeal on the ground that the sums paid to H were not staffing costs. The taxpayer appealed.
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