Stage One Creative Services Limited v The Commissioners for HMRC
[2024] UKFTT 1059 (TC)
Collins Construction Limited v The Commissioners For HMRC
21 October 2024
[2024] UKFTT 951 (TC)
First-tier Tribunal
A construction company claimed R&D tax relief but was denied it. A court ruled in their favor. The court decided the company's research wasn't paid for by clients, and wasn't part of work specifically hired out to them, meaning they qualified for the tax break.
Key Facts
- •Collins Construction Limited (Collins) appealed closure notices denying research and development (R&D) tax relief for accounting periods ended 30 June 2018 and 30 June 2019.
- •HMRC denied relief, arguing the expenditure was "subsidised expenditure" or incurred in carrying out sub-contracted R&D activities.
- •Collins argued the expenditure was qualifying expenditure, not subsidised or contracted out.
- •The appeal concerned Collins's bespoke construction projects, with claims for expenditure on 27 projects.
- •The key issues were whether the expenditure was "subsidised expenditure" (under sections 1052(6) and 1053(5) CTA 2009) and whether it was "incurred by the company in carrying on activities which are contracted out" (under sections 1052(5) and 1053(4) CTA 2009).
- •Collins' contracts were based on JCT standard contracts.
- •Collins argued that the clients did not pay for the specific R&D costs, but rather for the overall project. The R&D was Collins' risk and initiative and not contracted out.
- •HMRC argued that the clients indirectly met the expenditure by paying Collins for the works, regardless of the specific breakdown of costs.
Legal Principles
Purposive statutory interpretation, considering the intended purpose of the legislation and applying it realistically to the facts.
Balhousie Holdings Limited v HMRC [2021] STC 753 at [24]
Objective assessment of the meaning a reasonable legislature would convey in using statutory words.
R (Project for the Registration of Children as British Citizens) v Secretary of State for the Home Department [2023] AC 255 at [29] and [31]
Judicial comity: following prior decisions of coordinate jurisdiction unless convinced they are wrong.
Redevco Properties UK 1 Ltd v HMRC [2023] UKFTT 665
In determining whether contractual obligations fall within a statutory description, one must first identify the obligations as a matter of contract, then consider if they meet the statutory definition.
A1 Lofts Limited v HMRC [2010] STC 214 at [40]
Outcomes
Appeal allowed.
The Tribunal found that the expenditure was not "subsidised expenditure" under section 1138(1)(c) CTA 2009, following the reasoning in Quinn (London) Ltd v HMRC [2022] SFTD 122 (TC), and that the expenditure was not "incurred by the company in carrying on activities which are contracted out" under sections 1052(5) and 1053(4) CTA 2009.