Stage One Creative Services Limited v HMRC
Case number: TC09358
25 October 2024
The case focussed on Tills Plus Limited’s (TPL) development of a new EPOS system. This was to be funded by Mr Kosari’s (the owners) father-in-law, a resident of Iran. The movement of funds proved challenging due to sanctions. The contract between Mr Fatoorehchi (the father-in-law) to Mr Kosari and Till Plus had limited paperwork and were drawn up as part of this process.
TPL claimed R&D tax relief in 2018 and 2019 with over £1m of R&D expenditure and HMRC raised an enquiry dissolving both claims one of which had already been paid out to TPL.
TPL accepted HMRCs decision regarding the validity of the R&D two days before the hearing. However they continued to challenge the payment issue which therefore became the scope of this FTT.
iWond was selected as the development partner. The question arose around the payments that had been made to iWond (total of £2.44m) and satisfying physical payment by the company as the payment was made by Mr Fatoorehchi directly and then debts raised.
When considering the R&D, the focus of the competent professional and what was being developed remained key and Mr Kosari cited numerous features and benefits but not technology.
Mr Kosari of TPL admitted he was not an IT or an AI expert but is a businessman but as the main witness proved difficult in understanding the information that had been provided, or questions being asked.
They identified competent professional Dr Zade in this case. The FTT did deem that he met the criteria as a competent professional and thought his comments should be regarded by the court, however as he was not available it may well have been merely opinion and could not be tested.
The FTT agreed with TPL that HMRC’s reliance on physical payment between parties was too narrow a definition of a subcontractor relationship. The interpretation should be that if the financial liability had been discharged by agreed means, then the payment condition was satisfied.
The courts agreed that by virtue of a plan, a project had been created and satisfied that test however a lack of evidence of the project boundaries was cited damaged TPL’s argument. The FTT found that HMRC should be able to rely on the R&D issue and it should not be adjourned.
The payment flow of projects can come under practical consideration by HMRC, so advisors should be aware of the payment flow between the parties.
Hallmarks of projects are need, as well is evidence that can be relied upon.
Consistent, thoughtful and focused evidence is needed in an enquiry. TPL continued to give vague answers and did not present the information that is required to support an R&D claim.
HMRC was right to pursue this case as it didn’t pass the sniff test. Whilst the courts accepted the payment issue, when taking the tone and approach together this case does not give any sense that this is R&D that the UK taxpayer should not be paying for.
Case number: TC09358
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