Stage One Creative Services Limited v HMRC
Case number: TC09358
25 October 2024
An R&D tax relief claim was made via an amended return covering four main projects then ‘other projects’ but the FTT changed it to consider a single, composite project.
When HMRC opened an enquiry, no specific documentation could be referenced to substantiate that the projects. The percentage allocation of people’s time was purely based on conversations. Other costs had been captured as a blanket 1.5% of cost of sales with no evidence. A third party had been included in the claim at 70% for a monthly retainer which stated story evaluation and additional fee.
Various meetings were held between FTP and HMRC and in May 2022, HMRC informed FTPs advisors that the claim would be refused, a decision which was appealed in July 2022.
On appeal the original decision was upheld in November 2022 followed almost immediately by notification of appeal to Tribunal.
FTP’s challenge was that the guidance was not a set of rigid instructions, but HMRC and the FTT agreed with the principle that what was set out in Gripple v HMRC [2010] EWHC 1609 (Ch) and further agreed in Hadee v HMRC [2020] UKFTT 497 (TC). The FTT had similarly held that “a narrow approach was required” and that “the Guidelines require a strict interpretation to achieve their purpose”.
The FTT considered if it was right to treat the claim as one single project. This involved making the books in FTP’s digital archive available in the marketplace as curated and searchable resources, which they succeeded in doing.
The discussion revolved around HMRC’s challenge if “an advance had been achieved”. This came down to the consideration of a competent professional to help decide if this was new only to FTP, or something more.
HMRC relied upon AHK v HMRC [2020] UKFTT 232 (TC) (“AHK”), and that a competent professional ‘goes beyond having an intelligent interest in the field…to be accepted as a competent professional, an individual would need to be able to demonstrate appropriate qualifications, experience and up-to-date knowledge of the relevant scientific and technological principles involved.”
The Tribunal ruled in favour of HMRC as FTP did not have a competent professional in the field on which to judge the advance and the project failed to show the Project had either (a) resolved uncertainties which could not have been resolved by a competent professional or (b) made an improvement which a competent professional would have acknowledged as being “non-trivial”.
The FTT also agreed with HMRC on costs and that there was not sufficient evidence to justify the costs attributed to the claim.
The Tribunal is practical in how it applies the legislation and guidance and whilst it will rely on precedent, they continually show a willingness and desire to consider the context.
It makes little sense as to why this was raised to FTT as it didn’t need a tribunal to point out that evidence to justify costs is key as well as reconfirming the importance of a competent professional.
Case number: TC09358
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Case number: TC09235