Hadee Engineering Co Ltd
It isn’t very often research and development (R&D) tax relief is referred to in published tax cases. In this case, the matter in question is more in respect of the rules and powers HMRC has in relation to tax enquiries. Even so it makes for interesting reading!
There was a similar enquiry underway on an R&D client in my previous job where the client provided all that they could and nothing further. The project narrative had been submitted and then subsequently re-worded and discussed over the phone yet, HMRC were still digging in their heels.
I believe they did eventually back down
Hadee Engineering Co Ltd (TC6272 and TC6270)
Application for closure notice
An engineering company applied for a refund for R&D expenditure. In May 2010, HMRC opened an enquiry under code of practice 9 (civil investigation into cases of suspected serious fraud) on the basis that the taxpayer had not shown it met the criteria for R&D tax credit relief.
The taxpayer applied for a closure notice on the ground that it could produce no more information or documents. After an enquiry lasting seven years, its adviser said HMRC had not discovered any fraud. HMRC said it required more information before it could close the enquiry.
The First-tier Tribunal decided the Revenue no longer had reasonable grounds for keeping the enquiry open and directed that a closure notice be issued within 30 days of the release of its decision.
In a separate appeal hearing before the same tribunal the same day, the taxpayer appealed against a penalty notice imposed for failure to provide information. The adviser said he had submitted a formal request for a review within the specified time. Further, since HMRC did not receive the letter asking for a review, it should allow a late request on the ground of reasonable excuse or natural justice.
The First-tier Tribunal accepted that the adviser had posted a letter requesting a review and that its existence had been brought to HMRC’s attention at a meeting a couple of months later. The penalty was quashed.
The taxpayer’s appeal was allowed.
This case is important as it shows that HMRC can sometimes take matters too far and won't let a matter drop. It makes it difficult for the taxpayer as they must have the funds to go to tribunal, to obtain what should have been the outcome had common sense prevailed.
Nigel Holmes FCA CTA, Senior R&D Consultant at Catax
M: 0775 273 2958