More R&D cowboys

But no tax penalty

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H & H Contract Scaffolding Ltd v The Commissioners for HMRC - Find case law - The National Archives

https://caselaw.nationalarchives.gov.uk/ukftt/tc/2024/151

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By FactChecker
27th Feb 2024 21:08

Stunning ... twice over ... and a great example of why the R&D 'scheme' has such a poor reputation (for honesty, let alone achieving its purpose on behalf of the UK).

1. HMRC: the commissioners appear to have based their main argument on what is tantamount to 'if they can't prove their innocence then they must be guilty'!

2. Appellant: a belief that "R&D had been carried out as these projects were far beyond normal scaffolding work" - without reference to any of the scheme's actual criteria.

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By Ruddles
27th Feb 2024 22:16

As unpalatable as it may be to those that have repeatedly displayed a prejudice against R&D in general, this seems like the correct decision. The question is whether HMRC will learn from this and take a different approach in future cases.

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Replying to Ruddles:
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By FactChecker
27th Feb 2024 23:08

For the avoidance of doubt, I agree that this was the correct decision - but that is in terms of rebuffing HMRC's attempt to enforce a penalty assessment "for a careless inaccuracy".

However, whilst I don't consider myself prejudiced "against R&D in general" (indeed I applaud every piece of research-driven development when it is planned in the context of the objectives of the scheme), I have encountered over the last dozen years *far too many* charlatans.
Both the 'promoters' (some of whom are no more qualified than ambulance-chasers and show the same disregard for any semblance of integrity) and the 'greedy' (those who are all too ready to be talked into 'sign here, no need to ask questions').

I have previously made claims on behalf of my (then) own company and was equally appalled by the 'churn approach' adopted by all the advisers whom I initially contacted, and then by the sheer (let's call it) lack of experience of the company's accountants.
Each project was carefully specified in advance (objectives, methodologies, resources, budgets, reviews, etc) with full tracking to capture data all the way. Which of course is a lot of effort up-front, but made the record-keeping and subsequent claims extremely simple.

Personally, as I've said before, I can't see why we (taxpayers) should fund anything that is only considered *after* the event to meet the criteria required to file a claim ... but maybe that means my prejudice is showing after all!

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Replying to FactChecker:
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By Justin Bryant
28th Feb 2024 08:59

The really crazy thing is that you can get a £1m+ penalty for failing to make a DoTAS disclosure (for perfectly legal tax avoidance that might work) and yet for this mad R&D claim (which, let's face it, is essentially tax evasion dressed up as R&D tax advice) there is no penalty downside risk by the look of things. So who can blame them for chancing their arm for £100ks (especially when HMRC have a history of not policing this properly in the 1st place)?

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Replying to Justin Bryant:
By SteveHa
28th Feb 2024 09:35

To be fair, HMRC lost because the prepared a lousy case that didn't stand up to scrutiny. This judgement does not provide carte blanche escape from penalties, and should serve to force HMRC to be better prepared for penalty appeals.

Not knowing the details of the claim, I can't comment on whether or not they would have won had they prepared better.

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Replying to SteveHa:
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By Justin Bryant
28th Feb 2024 09:43

I'm not so sure about that. There was no finding of carelessness because of the taxpayer's reliance on a so-called adviser (in what is very much a specialist tax area). How could HMRC have proved there was taxpayer carelessness in those circumstances? Please cite an R&D case on similar facts (or an analogous tax penalty case) where there's been a penalty so that we can compare it.

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Replying to Justin Bryant:
By SteveHa
28th Feb 2024 11:42

Honestly, I don't need to in order to defend my comment. HMRC failed (and, arguably, failed to try) to demonstrate carelessness other than by way of a circular argument that didn't stand up.

If they'd have put some proper effort into defending their position, the outcome may have been different.

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Replying to SteveHa:
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By Justin Bryant
28th Feb 2024 12:48

If you'd put some proper effort into defending your position, I might agree with you.

I'll assume I'm right unless/until someone else cites an appropriate case here to prove me wrong (after all, that's how the law of precedent works, innit?).

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Replying to Justin Bryant:
By SteveHa
28th Feb 2024 13:30

Well if you want a case to demonstrate my point that HMRC did a lousy job of presenting their position, look no further than https://caselaw.nationalarchives.gov.uk/ukftt/tc/2024/151

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Replying to SteveHa:
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By Justin Bryant
28th Feb 2024 13:56

That's a bit of a dumb and immature answer (and I don't disagree with that HMRC lousy job point and my point was to find a case where a penalty has applied in a similar situation - in case you don't know what analogous means).

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Replying to Justin Bryant:
By SteveHa
28th Feb 2024 20:29

Justin, whilst I will admit that often you make valid points (and probably equally as often, you don't), but we appear to be in agreement on this.

I haven't resorted to name-calling or insults, so let's reassess who is being immature.

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Replying to FactChecker:
By Ruddles
28th Feb 2024 09:44

I wouldn't disagree with any of that

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By richard thomas
28th Feb 2024 14:31

In agreement with Ruddles, the decision is undoubtedly right and is the one I would have come to on the facts as stated. The decision points out that even if the agents had been careless (and that would have been sufficient to land the taxpayer with a penalty, given paragraph 18(1) Schedule 24) there is a let out if, despite the agent’s actions or inactions which led to the inaccuracy, the taxpayer took reasonable care to avoid the inaccuracy. A similar let out applies to other penalties where reasonable excuse is involved.

It may boggle our tax expert minds that someone can think that scaffolding can involve R&D as defined in tax law, but judges have to put themselves in the shoes of the taxpayer, not a tax expert.

The remedy where the agent is dishonest is in Schedule 38 FA 2012.

I’m intrigued by Justin’s stance that he’s right even if he’s wrong on any subject on which there is no tax case disproving him. If he is saying that HMRC have never won a penalty case where the taxpayer asserts they took reasonable care to avoid a failure or inaccuracy that was the fault of a third party, then he is wrong. I could if I was bothered find a number of my own decisions where I did not accept the taxpayer’s argument on this point, based on objective evidence. A typical case would be where there was a failure to file a return and the taxpayer says, correctly, that they gave the agent all the documents they needed in good time and when they asked were told that it was all in hand. That was enough to get them off the initial penalty, but when they did nothing after receiving the penalty notice and then got further penalties they were not allowed to get away with it.

It is notable that in this case there was a paper hearing. So HMRC denied themselves the ability to cross-examine the taxpayer. Even though they cited the wrong legislation, the third party let out is in all RE provisions so they must have realised that it might be put forward.

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Replying to richard thomas:
paddle steamer
By DJKL
28th Feb 2024 14:40

richard thomas wrote:

I

I’m intrigued by Justin’s stance that he’s right even if he’s wrong on any subject on which there is no tax case disproving him. .

Reminds me of this quote (albeit about an Oxford man)

"First come I; my name is Jowett. There's no knowledge but I know it. I am Master of this college: What I don't know isn't knowledge."

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Replying to richard thomas:
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By Bobbo
28th Feb 2024 16:02

richard thomas wrote:

It may boggle our tax expert minds that someone can think that scaffolding can involve R&D as defined in tax law, but judges have to put themselves in the shoes of the taxpayer, not a tax expert.

I would indeed love to know what the company did that it was claimed constituted R&D.

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Replying to Bobbo:
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By FactChecker
28th Feb 2024 16:51

Maybe they worked out how to overcome gravity and developed a new installation process whereby you tip the poles/etc on the ground and it all self-assembled without manual labour?
I somewhat doubt it ... but it might explain the size of the claim (all those failed attempts would've been costly).

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Replying to FactChecker:
paddle steamer
By DJKL
28th Feb 2024 17:03

Strong rubber bands up the inside of the scaffold poles, they can then be folded on the truck but take them off , release a catch and a combined pole is created.

I have some recollection of a toy magic set I was given with a wand with a rubber band in the centre, so you hid it up your sleeve and then could make the wand appear. (oops, revealing secrets, that is me thrown out of the Magic Circle)

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Replying to richard thomas:
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By Justin Bryant
28th Feb 2024 17:50

Richard you are comparing chalk and cheese as this is taxpayer reliance on their adviser re specialist tax advice (not basic taxpayer careless oversight etc. as in your penalty case examples). See: https://www.taxadvisermagazine.com/article/careless-tax
https://www.rpc.co.uk/perspectives/tax-take/reasonable-care-and-the-role...

That's the whole reason avoidance schemes (that do not include dodgy R&D advice) are carved out re adviser reliance re penalty mitigation (as avoidance schemes almost always involve specialist tax advice).

In short, for HMRC to win in a non-tax avoidance penalty case that involves taxpayer reliance on specialist tax advice, it's not easy and they'd probably have to at least show that the taxpayer should not have appointed the dodgy agent in the 1st place (which is not easy, unless perhaps the purported specialist tax adviser is some bloke down the proverbial pub).

I still await a suitable case that shows I'm wrong (which is only fair, as I've cited links above to cases showing I'm right)!

In fact, re-reading your above comment I believe you agree with what I say above.

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Replying to Justin Bryant:
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By Justin Bryant
29th Feb 2024 11:04

I found an analogous penalty case (re taxpayer reliance on an adviser for specialist tax advice) that HMRC should not have won but did, due to it being a dodgy-looking FTT decision (that I expect will be successfully appealed by the taxpayer), so is arguably the exception that proves the rule here, thus supporting my above point. See:
https://www.accountingweb.co.uk/any-answers/dont-tell-clients-their-tax-...

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Replying to Justin Bryant:
By Ruddles
29th Feb 2024 11:50

Justinian logic again.

Only you could come up with a case that counters your argument, but which you then argue is the exception that proves you right.

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Replying to Ruddles:
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By Justin Bryant
29th Feb 2024 12:06

In that case, clearly you don't understand much about this topic (or logic etc. for that matter).

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Replying to Justin Bryant:
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By richard thomas
29th Feb 2024 15:03

That's due then to my not understanding the question first time round. And I'm made even more confused by your second paragraph here, with its double "re"s, a sloppy shortcut of a preposition which can mean almost anything.

If your point is as stated in the third para, ie it's not easy for HMRC to win cases
where the taxpayer relies on specialist advice then I'd agree with you that you are right. But it's not a statement that can be proved by demonstrating no HMRC wins at the FTT, or controverted by showing some HMRC wins, as the number of cases where HMRC wins or accepts loss without the case going to the Tribunal cannot be known, which is why your frequent statements daring people to cite a tax case to prove you wrong are misguided.

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Replying to richard thomas:
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By Justin Bryant
29th Feb 2024 15:56

Fyi here's an example of your wrong penalty case example above (i.e. it's not analogous, as it's nothing to do with relying on an adviser re specialist tax advice, but just concerns using an agent generally where the issue does not concern specialist tax advice) in case that makes it clearer: https://www.bailii.org/uk/cases/UKFTT/TC/2024/TC09073.html

As far as I'm aware, there are no correctly decided cases proving me wrong on this issue (i.e. that it's hard for HMRC to get a penalty to stick in this situation, which was the whole point of the tax-avoidance carve out rules of course - ask Margaret Hodge - but these don't cover dodgy R&D claims).

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By Justin Bryant
04th Mar 2024 14:35

Looks like HMRC agree there's a problem issue here:

"Gaps in HMRC’s ability to tackle non-compliance put compliant taxpayers at a disadvantage and can undermine perceptions of fairness in the UK tax system and trust in HMRC. As set out in Annex B, the approach taken by other countries illustrates how penalties could support compliance more generally: for example, the application of penalties in instances of carelessness by agents and the adoption of unreasonable tax positions."

https://www.gov.uk/government/calls-for-evidence/the-tax-administration-...

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