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R&D appeal written off due to lack of knowledge


A publisher’s research and development claim appeal was rejected because no one in the company had the relevant skills to carry out the work or to demonstrate that it had been done.

15th May 2024
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A publishing company has lost its appeal against HMRC’s decision to reject its research and development (R&D) tax relief claim, highlighting the importance of having a competent professional (CP) with relevant, up-to-date technical or scientific knowledge.

This first tier tribunal (FTT) case, Flame Tree Publishing Ltd vs The Commissioners for HMRC, also highlights that claimants need to prove the costs claimed relate to the R&D activity. HMRC may not accept the use of flat percentages applied to cost of sales figures, for example.

No qualifying R&D

Flame Tree Publishing Ltd’s R&D tax relief claim related to work to create digital books by converting their own previously published books into accessible digital formats. The claim was rejected following enquiry, and this decision was upheld by a statutory review. The company appealed to the tribunal on the basis that it met tests outlined in the guidelines and the rejection of the claim was not valid.

HMRC’s case was that the company failed to show any of its activities had met the tests described in paras 22 and 24 of the guidelines. The company had used technology that was new to the company, and this was insufficient to meet the tests required. 

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Replies (4)

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By FactChecker
15th May 2024 21:56

I was stunned to discover that the appellants were represented (from reading the above article it seemed obviously a no-hoper/unrepresented attempt - but no)!

More importantly it's not clear to me that, per article, the core factor was the lack of a 'competent professional' - other than in the sense that any competent person would never have made the claim.

Even at the 'Noddy-like' level of GOV.UK guidance it should have been obvious that 'innovation' means somewhat more than 'something *we* haven't done before'.
And the facts that "the company had no plans showing how the project progressed, or why and when the technical uncertainties were worked on; could not identify a clear start and end to the R&D work, and costs were never allocated to the R&D projects" are indicative that there was NO proper project (deserving or otherwise of being associated with innovative R&D).

FWIW however, "they did not possess the skills necessary to be considered competent professionals in software development and programming" is not really relevant.
IF everything else had been both appropriate and set up correctly, then there's no reason that all the 'tech stuff' couldn't have been validly contracted out.

Thanks (2)
Ivor Windybottom
By Ivor Windybottom
16th May 2024 09:24

While the claim appears to be hopeless and should never have been made, it is also worth noting that the claim was made in ~2018, so is perhaps indicative of the volume of seriously poor claims made at that time.

Obviously when examined using the current tests this was never going to qualify, but I would not read a lot into this case as appears to be just a case that was never really supportable.

To suggest this shows "competent professionals" is the key factor misses the point that you have to undertake and document proper R&D first, as FactChecker mentions.

Thanks (2)
By Munch
16th May 2024 11:05

I would really like to know if they were guided in their claim by an R&D advisory boutique. There will be many more R&D rejections coming. Even in interview processes I have been involved in the excited CEO quoting R&D claims under scrutiny are left shaking after a few questions. Unscrupulous advisors are aplenty.

Thanks (1)
Pile of Stones
By Beach Accountancy
16th May 2024 13:47

Surely it was obvious that 99% of these R&D claims were just after "free money". Very few companies really spend the time and money involved in genuine new R&D.

Mind you I suspect that HMRC would have set the initial bar higher, but were leaned on by the government to report how much wonderful R&D UK companies were doing!

Thanks (2)