Tribunal Finds Against HMRC Regarding SME’s R&D Tax Claim

A tribunal decided in favour of the taxpayer in the case of Collins Construction Ltd v HMRC in the First-tier Tribunal Tax Chamber. The decision was published on 21^st October 2024.

Collins Construction is an SME established in 1956, delivering refurbishments and fit-outs for a range of clients. Once projects were won by tender, Collins encountered R&D challenges in the course of delivering the projects, which were outside of the agreed scope of the work.

HMRC refused two claims made by the company under the SME R&D Tax Credit scheme on the basis of the work done by the company being subsidised. It argued that the company’s clients subcontracted the R&D and thus the R&D completed by Collins was ineligible for tax relief.

However, the tribunal found against this argument, putting forward that Collins’ “clients do not agree to pay or reimburse the appellants for particular costs… [and Collins] did not agree to carry out the relevant R&D on being paid or reimbursed by the client for doing so.”

Tribunal Judge Sukul’s decision supported the decision in an earlier First-tier Tribunal (Quinn (London) Ltd v HMRC). This decision itself was also supported by an Upper Tribunal decision in HMRC v Perenco UK Ltd.

In Quinn, a similar situation was put forth and a tribunal found in favour of the taxpayer. It found that if HMRC’s position were to be accepted, there would be little incentive for any SME who seeks to exploit its R&D for commercial gain to put forward a claim.

This is a welcome decision for the many SMEs navigating the minefield of claiming for R&D work they take on of their own volition, within the undertaking of a project for a client where “there is no contractual requirement or provision for R&D activities.“

Unfortunately, this decision could only be made as Collins Construction had the resources to pursue this claim to the First-Tier Tax Tribunal.

Many SMEs are subjected to costly defences which can take months, or even years, to reach an outcome. The cost of defending their position may well be more than the claim’s value, which dissuades claimants from pursuing their claim to this point.

Collins is one of two lead cases at First-Tier Tax Tribunal after being refused on the grounds of subsidised expenditure, alongside Stage One Creative Services Ltd v HMRC, whose decision has not yet been published.

Explore Our Success in Defending R&D Claims

At Myriad, we have a strong record of success in R&D tax tribunal cases. Discover our recent wins against HMRC, where we successfully defended clients’ right to claim R&D tax credits:

• Myriad Wins Tribunal Case on Software Development
• Myriad Overturns HMRC Compliance Decision

How Myriad Can Help You

At Myriad, we're not just another tax incentives consultancy; we deliver high-quality services while eliminating your risk.

Our promise to you is simple: we stand firmly behind our advice. If a claim submitted by us is challenged, we'll defend it free of charge. If your claim is rejected, we won't charge you any fees. We'll cover any HMRC penalties and even compensate you for your time.

By leveraging our expertise, you can focus on what you do best – innovating and growing your business – while we ensure you receive the maximum R&D tax relief you're entitled to. We have experience at all levels of legal disputes with HMRC over R&D tax relief, from the first response following a letter through the letterbox to delivering ground-breaking decisions at First-Tier Tax Tribunal.

For a discussion about your R&D tax credit opportunities or a compliance check you’ve received, please call 0207 118 6045 or reach out through our Contact Page.