Landmark R&D tax credit case – HMRC loses tribunal against software company

HM Revenue and Customs (HMRC) has lost a landmark case at the First-tier Tribunal, challenging a software company’s entitlement to R&D tax credits.

The case, brought by software company Get Onbord (GO), was heard on 3 January with the judgement delivered on 9 July.

The tribunal examined whether GO was eligible for an R&D tax credit under section 1054 of the UK’s Corporation Tax Act (CTA) 2009, assessing compliance with the Department of Business, Energy and Industrial Strategy (BEIS) guidelines for R&D.

Tribunal judge Mark Baldwin concluded that GO’s project met the BEIS Guidelines’ definition of R&D, allowing the company to appeal HMRC’s denial of their tax credit claim.

“We have concluded that GO’s project did constitute R&D within the meaning in the BEIS Guidelines,” Baldwin stated. “The argument that it did not was HMRC’s only objection to the claim made by GO for an R&D tax credit under section 1054 CTA 2009. It follows that GO was entitled to make the claim and that its appeal is allowed.”

Judge Baldwin found that GO had a clearly defined project aim and that the technology it sought to develop was neither publicly available nor readily deducible.

He also noted that the project involved resolving technological uncertainties that a competent professional in the field could not have easily resolved, indicating that the work went beyond routine adaptation or copying of existing technologies.

This ruling is expected to have significant implications for UK software development companies claiming R&D tax credits.

It shows that practical, hands-on experience and demonstrated skills are adequate to evidence R&D activities, rather than solely relying on formal qualifications.

Additionally, the judgement clarifies that the use of existing tools and open-source software does not disqualify a project from being considered R&D, provided the project involves substantial innovation and is not merely routine development.

It’s obvious that this case will have an impact on future R&D tax claims.

Jen Badger, Co-Founder at WhisperClaims, said: “This case sets a precedent that HMRC have an obligation to provide evidence that the claim is not valid, not simply to demand that the claimant company prove that it is. ‘

“Companies should also feel more confident in claiming R&D tax credits for projects that involve significant technological challenges and innovative solutions, even if they incorporate existing technologies and tools.

“I’m hopeful that this will herald a change in how HMRC manage enquiries and lead to better training and support for their R&D compliance team.”

Your clients need support in this important area of tax advice. Contact us today to find out how our software can help you deliver a high quality R&D tax claims service with confidence.