Stage One Creative Services Limited v The Commissioners for HMRC
[2024] UKFTT 1059 (TC)
Strictly Money Ltd v The Commissioner For HMRC
20 September 2024
[2024] UKFTT 866 (TC)
First-tier Tribunal
A small company tried to claim a big tax break for research and development, but the taxman disagreed. A judge agreed with the taxman, saying the company wasn't really a business yet and the research wasn't related to the tiny bit of business they *did* do. The company's attempt to add new evidence late also failed.
Key Facts
- •Strictly Money Limited (appellant) appealed HMRC's amendments to its corporation tax return for the period 1 June 2016 to 31 May 2017.
- •The appellant claimed an additional deduction under s1044 CTA 2009 for contracted-out R&D expenditure of £1,439,000 (after concessions).
- •The expenditure related to payments to Jorgen Falk (£1.4 million) and Burderop Bridge Ltd (£39,000).
- •The appellant's main business activity was an early-stage, technology-based business idea (blockchain-enabled securities trading platform) that did not generate revenue during the period.
- •The appellant also undertook 'sideline' consulting work for Stockmarket Casino Plc for £30,000.
- •The Tribunal found that Mr. Falk did not perform meaningful work for the appellant company during the relevant period.
- •The Tribunal considered a post-hearing application by the appellant to introduce new evidence but rejected it due to non-compliance with procedural rules.
Legal Principles
To obtain an additional deduction under s1044 CTA 2009, the company must have been carrying on a trade, the expenditure must have been qualifying expenditure on contracted-out R&D, and that expenditure must have been allowable as a deduction in calculating the profits of the company's trade.
Corporation Tax Act 2009 (CTA 2009), s1044
Expenditure is qualifying expenditure on contracted-out R&D if it is attributable to relevant R&D undertaken on behalf of the company and incurred in making a qualifying element of a subcontractor payment (s1053(1)(a), s1053(2)). A subcontractor payment is defined in s1133 CTA 2009.
CTA 2009, s1053(1)(a), s1053(2), s1133
The definition of research and development for tax purposes is guided by the Department for Business, Innovation & Skills’ Guidelines.
Department for Business, Innovation & Skills’ Guidelines on the Meaning of Research and Development for Tax Purposes
Expenses must be wholly and exclusively for the purposes of a trade to be allowable deductions (s54 CTA 2009).
CTA 2009, s54
The Tribunal's role is limited to deciding whether the assessment overcharged or undercharged the appellant and adjusting accordingly, based on the evidence and the law.
Taxes Management Act 1970, s50
Outcomes
Appeal dismissed.
The Tribunal found that the appellant company was not carrying on a trade in relation to its main business activity (the early-stage technology venture). While the company did carry on a trade through its sideline consulting work, the £1,439,000 R&D expenditure was not allowable as a deduction from the profits of that trade, as it was not incurred for the purposes of the sideline consulting activity.
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