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Construction company wins a Landmark ruling against HMRC
16 November 2021
HMRC’s recent broad interpretation of the subsidy rules for R&D Tax Reliefs have been tested in a recent tribunal case brought on behalf of construction company Quinn London Limited.
It contested that, because Quinn’s R&D projects are typically carried out on behalf of their clients, any expenditure on that project should be treated as subsidised.
The outcome of the tribunal was that the judge found in favour of Quinn London Limited in that HMRCs’ extrapolation of the current rules was too restrictive, limiting all SME’s to access this relief, the whole purpose of which was to encourage innovation.
In a landmark tribunal ruling, Judge Morgan stated in her verdict:
“It would be wholly out of kilter with the overall SME scheme if an SME were to be denied relief solely because it seeks to recover some or all of the relevant costs under its commercial contracts with its clients.
“If HMRC’s approach were to be adopted, the circumstances in which an SME could claim enhanced R&D relief would seem to be confined to those where it has no prospect of exploiting the R&D for commercial gain.”
Vic Ulfik, Head of Innovations Relief at Fortus, comments;
“This is excellent news for the construction and built environment sector, who work on behalf of clients and engage in research and development activities in order to overcome technical or scientific uncertainties that prevent the desired outcome being achieved.
The sector’s constantly challenged by architects, designers and engineers who have to respond with new and innovative processes in order to make designs a reality. This outcome should give them the confidence to take on more challenging work in they can now claim back more of their investment as tax relies.
Why should companies who spend money through their own innovative approach be denied access to a tax relief that was purposely put in place to reward and encourage them?
It also raises the question of retrospective claims being made where HMRC has determined the claim to be an RDEC claim but in fact, based on this ruling, should have been under the more generous SME scheme.
This could result in a cash bonanza for companies who still have time to retrospectively amend their corporation tax returns.”
Stephen Watts, Head of the Construction & Built Environment sector, adds;
“Whilst this wasn’t one of our own clients, we do work closely with other tax professionals and we shared a common sense of unfairness and illogic in HMRC’s stance. We’re therefore delighted at the verdict and will continue to maximise claims for businesses in this sector by using our in-house tax expertise and sector expertise to do this.”