UK Tax Agency Loses Tribunal Case Against Software Company Over R&D Tax Relief

The UK tax agency, HM Revenue and Customs (HMRC), has lost a case at the First-Tier Tribunal against the software company Get Onbord Ltd (GOL), which it claimed was not entitled to an R&D tax credit. The case, brought by GOL against HMRC, was heard on January 3, with the judgment handed down on Tuesday, July 9.

The tribunal examined whether GOL could claim an R&D tax credit under section 1054 of the UK’s Corporation Tax Act (CTA) 2009 and whether the R&D tests outlined in the Department of Business, Energy (BEIS), and Industrial Strategy guidelines had been met. The court determined that GOL met these criteria and could appeal.

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

GOL was represented by its former director Edward Cahill and Barrie Dowsett of UK specialist R&D tax credit advisers Myriad Associates, while HMRC litigator David Lewis represented the agency.

Baldwin was convinced that GOL had a project with a clear aim and that the technology it aimed to develop was not already publicly available or easily deducible. He also concluded that the project involved more than just “routine” copying or adaptation of existing products or processes. Additionally, he ruled that the project required resolving technological uncertainties that a competent professional in the field could not have easily resolved.

Rufus Meakin, an R&D tax credit strategic partnership manager with advisory firm MSC R&D, described the judgment as a “landmark” decision with significant implications for UK software development companies. Meakin said, “This case is important for companies claiming R&D tax credits for software projects as it accepts that practical, hands-on experience and proven skills are sufficient to evidence that R&D has taken place, not just formal qualifications. It also clarifies that using existing tools and open-source software does not disqualify a project from being considered R&D, as long as the overall project involves significant innovation and is not just routine development.”

Tax experts have previously criticized HMRC’s handling of R&D tax relief claims as “heavy-handed” and “indiscriminate.”

By fLEXI tEAM