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The recent decision in Get Onbord Limited v HMRC [2024] UKFTT 617 (TC) provided some helpful guidance for taxpayers and HMRC on the First-tier Tribunal’s (“FTT”) approach to research and development (“R&D") claims and in particular, the levels of evidence that both parties need to provide.
In HMRC’s annual report, HMRC reported that it spent £7.7billion on administering the R&D tax relief scheme. HMRC estimated that the level of error and fraud in the R&D tax relief schemes in 2021 and 2022 is 17.6% (£1.34billion), with the majority relating to the SME scheme. This comes after Labour announced the plans to raise an additional £5bn by the end of this parliament by recovering more tax revenues. In the authors’ view, HMRC are likely to continue careful consideration of R&D claims. Whilst many advisers are seeing, occasionally unreasonable, lengthy requests being made by HMRC to the taxpayer, it is increasingly important that taxpayers, and their advisers, are entirely on top of what can and cannot be rightfully claimed.
In Get Onbord, the FTT ultimately allowed the taxpayer’s appeal and reiterated the importance of witness evidence in R&D claims. Whilst the FTT found HMRC’s witness (the respective case officer) to be honest and straightforward, his lack of scientific knowledge was a stumbling block; whereas the experience and expertise of the Appellant company’s witness, Mr Cahill the ex-director, largely contributed to the Appellant’s success.
Whilst this case provides some reassurance for taxpayers submitting R&D claims that sense and expertise will sometimes prevail, it is also interesting case from an insolvency perspective.
The Appellant company had been placed into compulsory liquidation on 13 October 2023, several months prior to the appeal hearing on 3 January 2024, when the ex-director represented the company. The powers of a director automatically cease upon liquidation (whether compulsory or Creditors’ Voluntary Liquidation) and therefore at the time the appeal was heard, the director had no locus to make representations on behalf of the Company. He also did so without the Liquidators’ prior knowledge or authority. The Liquidators only found out about the appeal on 8 January 2024, five days after the hearing. Crucially when the Liquidators’ found out about the appeal they elected to adopt the director’s submissions and to permit the director to act on the Company’s behalf in the appeal. In the FTT’s words the Liquidators wished to validate a previously invalid act.
English law requires the parties before the court or a tribunal must have locus for a binding decision to be made. The FTT was unable to find any authority to support a finding that a lack of locuscan be retrospectively validated by the court. The FTT treated the director’s lack of locus as a procedural defect capable of remedy rather than a fundamental flaw.
The FTT referred to Schedule 4 IA86 which empowers liquidators to “do all such other things as may be necessary for winding up the company's affairs and distributing its assets" which the FTT interpreted as giving the liquidators the power to retrospectively validate the previous invalid act. The writers agree the Liquidators had the power to adopt the director’s submission in the same way as they can for example validate a pre-liquidation sale.
Having decided the Liquidators could adopt the ex-director’s submissions the FTT relied on the wide discretion given to it by the Tribunal Procedure (First-tier Tribunal) (Tax) Chamber Rules 2009 (the Rules) to allow the result of the appeal hearing to stand.
The case shows the FTT is willing to be pragmatic in the face of procedural complexity. It was sensible to allow an appeal where the result would likely have been the same on a fresh appeal.
Further information
If you, or your clients, have an open enquiry into a tax or R&D claim, or you have questions regarding directors’ responsibilities in liquidation, please do not hesitate to contact Krishna Mahajan.
About the authors
Krishna Mahajan is an Associate in the Dispute Resolution Team, who specialises in litigation and resolution of complex tax matters.
We welcome views and opinions about the issues raised in this blog. Should you require specific advice in relation to personal circumstances, please use the form on the contact page.
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