Method of paying subcontractor

The taxpayer developed technology for the hospitality industry in particular electronic point of sale systems. It submitted claims for research and development expenditure including subcontractor costs for the years 2018 and 2019. After an enquiry HMRC concluded that the claims should not be allowed and issued a closure notice. It also issued an assessment under FA 1998 Sch 18 para 52 to recover the tax credit of £390 000 which it had already paid.

The taxpayer appealed.

The First-tier Tribunal found that there was insufficient evidence to show the company had carried out R&D. The judge said it as ‘possible’ that the work could constitute ‘appreciable movement of existing products but ‘without further evidence we cannot say that what was being done would be acknowledged by a competent professional working in the field as a genuine and non-trivial improvement’.

HMRC had also raised a...