“…the provisions form a detailed and meticulously drafted code, with a series of defined terms and composite expressions, and a large number of carefully delineated conditions, all of which have to be satisfied if the relief is to be available… It seems to me… that a detailed and prescriptive code of this nature leaves little room for a purposive construction, and there is no substitute for going through the detailed conditions, one by one, to see if, on a fair reading, they are satisfied. It also needs to be remembered, in this context, that the relief is a generous one, which grants a deduction for notional expenditure which has not actually been incurred.”
“The ultimate question is whether the relevant statutory provisions, construed purposively, were intended to apply to the transaction, viewed realistically.”
“1052 Qualifying expenditure on in-house direct R&D “(1) A company’s ‘qualifying expenditure on in-house direct research and development’ means expenditure incurred by it in relation to which each of conditions A, B, D and E is met. (2) Condition A is that the expenditure is— (a) incurred on staffing costs (see section 1123), (b) incurred on software or consumable items (see section 1125), (c) qualifying expenditure on externally provided workers (see section 1127), or (d) incurred on relevant payments to the subjects of a clinical trial (see section 1140). (3) Condition B is that the expenditure is attributable to relevant research and development undertaken by the company itself … (4) [repealed] (5) Condition D is that the expenditure is not incurred by the company in carrying on activities which are contracted out to the company by any person. (6) Condition E is that the expenditure is not subsidised (see section 1138) …”
“1138 “Subsidised expenditure” “(1) For the purposes of this Part a company’s expenditure is treated as subsidised— (a) if a notified State aid is, or has been obtained in respect of— (i) the whole or part of the expenditure, or (ii) any other expenditure (whenever incurred) attributable to the same research and development project, (b) to the extent that a grant or subsidy (other than a notified State aid) is obtained in respect of the expenditure, (c) to the extent that it is otherwise met directly or indirectly by a person other than the company.” (a) if a notified State aid is, or has been obtained in respect of— (i) the whole or part of the expenditure, or (ii) any other expenditure (whenever incurred) attributable to the same research and development project, (b) to the extent that a grant or subsidy (other than a notified State aid) is obtained in respect of the expenditure, (c) to the extent that it is otherwise met directly or indirectly by a person other than the company.”
“No discovery assessment for an accounting period for which the company has delivered a company tax return, or discovery determination, may be made if— (a) the situation mentioned in paragraph 41(1) or (2) is attributable to a mistake in the return as to the basis on which the company's liability ought to have been computed, and (b) the return was in fact made on the basis or in accordance with the practice generally prevailing at the time when it was made.” (a) the situation mentioned in paragraph 41(1) or (2) is attributable to a mistake in the return as to the basis on which the company's liability ought to have been computed, and (b) the return was in fact made on the basis or in accordance with the practice generally prevailing at the time when it was made.”
“…TB [Officer Brown] read directly from the HMRC notes delivered to the RDCF (communications forum, name changed from consultative committee). These will be published shortly but of interest was the following: 1. HMRC not appealing Quinn but think Judge was wrong and HMRC not changing their view. 2. HMRC think their mistake was not litigating both contracted and subsidised in Quinn.”
“The R&D activity was undertaken to put the company in a position to fulfil our contractual obligations”. “At the very outset of the project it was not known if [SOCS] could rely on its prior IP R&D knowledge with slight adaptations…It was known very early into the project that R&D would be required”
“The new build should be pioneering, innovative and creative in structure, embracing the natural daylight and maximising both inside and outside space… This space externally and internally should allow us the flexibility to showcase our brand and content in new, interesting and creative ways… Options should be investigated to find clever ways to change the format of the space at pace and with ease during the lifetime of the event… Fully integrated technology led solutions should feature heavily in the design, supporting the need to display a range of content through smart, flexible branding opportunities e.g. could be a wall, could be a screen, could be an installation… The design… Needs to be versatile in so many ways. As you step into the space you are greeted by a warm and friendly environment with a bold, British and creativeness of the brand speaks for itself.”
“The difficulty for the appellant in this appeal is that no terms of engagement have been provided which may have clarified the nature of the activities forming part of the contract and whether, and if so to what extent, R&D was included”
“5. In brief, HMRC said that it suffices for s 1138(1)(c) to apply that the relevant R&D was carried out by Quinn in the course of it providing construction and refurbishment services to its Clients for which it was entitled to payment from the Clients of a sufficient amount to cover the claimed expenditure and which was in due course paid. In their view, it follows that the Clients indirectly ‘met’ the claimed expenditure by paying Quinn for its services. Quinn argued that, on the contrary, it cannot be said that the claimed expenditure was ‘met’ by Clients who, under an entirely commercial arrangement, simply paid a price for a product, the finished building works.”
“46…. Their analysis relies on the view that the interpretation of s 1138(1)(c) is not in any way to be constrained, coloured or shaped by reference to the scope of the preceding provisions in ss 1138(1)(a) or (b) or the fact that s 1052(6) refers to ‘subsidised’, expenditure seemingly as a generalised description of what is intended to be caught (as reflected in the heading to s 1138).”
“47. However, in my view, on the natural interpretation of these provisions as viewed in the overall context of the SME scheme, it is apparent that s 1138(1)(c) is not intended to apply in circumstances such as those in this case, in the absence of a clear link between the price paid by the client/customer and the expenditure on R&D: (1) The reference in s 1138(1)(c) to a person other than the SME otherwise meeting the SME’s expenditure, following on as it does from ss 1138(1)(a) and (b), is clearly based on the premise that ‘notified State aid’ or ‘a grant or subsidy..’ which is ‘obtained…in respect of’ the whole or part of the relevant expenditure (within the meaning of those preceding provisions) ‘met’ or meets that expenditure. (2) It seems to me that the further implication of the ‘otherwise’ wording is that s 1138(1)(c) is intended to operate, in effect, as a form of sweep up provision to capture cases (a) where expenditure is not ‘met’ by ‘notified State aid’ or ‘a grant or subsidy....’ (under the preceding provisions in ss 1138(1)(a) or (b)) but (b) is ‘met’ in a similar sense to that in which expenditure may be said to be ‘me’ by ‘a notified State aid’ or ‘a grant or subsidy’. In my view, that this is the correct interpretation is reinforced by the use of the term ‘subsidised expenditure’ in s 1052(6). The use of that particular term indicates the scope of Condition E in general terms as then further explained in s 1138, albeit that the use of that term in the heading to that section does not control the operation of the substantive provisions in that section. (3) I note that: (a) Whilst it is difficult to postulate all the circumstances in which there may be ‘a subsidy or grant’, according to the normal meaning of those terms, like the provision of ‘State aid’, the making of ‘a subsidy or grant’ generally involves the provision of funds to a recipient who either provides nothing in return or provides something which, viewed from the perspective of parties acting on an arm’s length basis, does not represent a commercial return commensurate with the value of the funds provided (albeit that in some cases, such as where a public or government body provides the funds, that body may consider it is in the wider public interest to fund the relevant R&D). (b) In ss 1138(1)(a) and (b) the requirement that the relevant funding must be ‘obtained … in respect of’ the relevant expenditure reinforces that there must be a clear link between the funding and the use of the funds for the payment or discharge of the relevant R&D costs. I say reinforces as, in my view, the use of the word ‘met’ in s 1138(1)(c) of itself suggests that there must be such a link. (4) Overall, it seems to me that the circumstances of this case are far removed from those which are intended to be captured by s 1138(1)(c) on a fair reading of it in the context of the whole of s 1138 and the overall SME scheme. I note that: (a) The contractual bargain between Quinn and its Clients is for Quinn to provide specified ‘Works’ to the Client in return for payment of an agreed price for those Works from the Client, subject to the detailed terms and conditions set out in the construction contracts. (b) For all the reasons set out in Mr Wells’ evidence (and as shown in the documents produced in the bundles) the price which is then agreed may or may not in fact be sufficient to cover the costs Quinn actual incurs in fulfilling the terms of the relevant contract. Quinn simply factors costs such as those relating to R&D into the price it wishes to charge in order to seek to achieve its desired commercial return. (c) It is plain, therefore, that under the contracts, Clients do not agree to pay or reimburse Quinn for particular costs, such as the claimed expenditure, and Quinn does not agree to carry out the relevant R&D on being paid or reimbursed by the Client for doing so. In other words, the bargain made between the parties is not for Quinn to incur specific costs such as the claimed expenditure in return for the Clients agreeing to pay those specific costs. (5) Moreover, it would be wholly out of kilter with the overall SME scheme, if an SME were to be denied enhanced R&D relief solely because, in doing what is envisaged by the legislation (namely, utilising the relevant R&D for the purposes of its trade), as is usual and to be expected of an entity carrying out a trade on a commercial basis, it seeks to recover some or all of the relevant costs of the R&D under its commercial contracts with its Clients entered into in the course of its ordinary trading activities. Indeed, 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.” (1) The reference in s 1138(1)(c) to a person other than the SME otherwise meeting the SME’s expenditure, following on as it does from ss 1138(1)(a) and (b), is clearly based on the premise that ‘notified State aid’ or ‘a grant or subsidy..’ which is ‘obtained…in respect of’ the whole or part of the relevant expenditure (within the meaning of those preceding provisions) ‘met’ or meets that expenditure. (2) It seems to me that the further implication of the ‘otherwise’ wording is that s 1138(1)(c) is intended to operate, in effect, as a form of sweep up provision to capture cases (a) where expenditure is not ‘met’ by ‘notified State aid’ or ‘a grant or subsidy....’ (under the preceding provisions in ss 1138(1)(a) or (b)) but (b) is ‘met’ in a similar sense to that in which expenditure may be said to be ‘me’ by ‘a notified State aid’ or ‘a grant or subsidy’. In my view, that this is the correct interpretation is reinforced by the use of the term ‘subsidised expenditure’ in s 1052(6). The use of that particular term indicates the scope of Condition E in general terms as then further explained in s 1138, albeit that the use of that term in the heading to that section does not control the operation of the substantive provisions in that section. (3) I note that: (a) Whilst it is difficult to postulate all the circumstances in which there may be ‘a subsidy or grant’, according to the normal meaning of those terms, like the provision of ‘State aid’, the making of ‘a subsidy or grant’ generally involves the provision of funds to a recipient who either provides nothing in return or provides something which, viewed from the perspective of parties acting on an arm’s length basis, does not represent a commercial return commensurate with the value of the funds provided (albeit that in some cases, such as where a public or government body provides the funds, that body may consider it is in the wider public interest to fund the relevant R&D). (b) In ss 1138(1)(a) and (b) the requirement that the relevant funding must be ‘obtained … in respect of’ the relevant expenditure reinforces that there must be a clear link between the funding and the use of the funds for the payment or discharge of the relevant R&D costs. I say reinforces as, in my view, the use of the word ‘met’ in s 1138(1)(c) of itself suggests that there must be such a link. (4) Overall, it seems to me that the circumstances of this case are far removed from those which are intended to be captured by s 1138(1)(c) on a fair reading of it in the context of the whole of s 1138 and the overall SME scheme. I note that: (a) The contractual bargain between Quinn and its Clients is for Quinn to provide specified ‘Works’ to the Client in return for payment of an agreed price for those Works from the Client, subject to the detailed terms and conditions set out in the construction contracts. (b) For all the reasons set out in Mr Wells’ evidence (and as shown in the documents produced in the bundles) the price which is then agreed may or may not in fact be sufficient to cover the costs Quinn actual incurs in fulfilling the terms of the relevant contract. Quinn simply factors costs such as those relating to R&D into the price it wishes to charge in order to seek to achieve its desired commercial return. (c) It is plain, therefore, that under the contracts, Clients do not agree to pay or reimburse Quinn for particular costs, such as the claimed expenditure, and Quinn does not agree to carry out the relevant R&D on being paid or reimbursed by the Client for doing so. In other words, the bargain made between the parties is not for Quinn to incur specific costs such as the claimed expenditure in return for the Clients agreeing to pay those specific costs. (5) Moreover, it would be wholly out of kilter with the overall SME scheme, if an SME were to be denied enhanced R&D relief solely because, in doing what is envisaged by the legislation (namely, utilising the relevant R&D for the purposes of its trade), as is usual and to be expected of an entity carrying out a trade on a commercial basis, it seeks to recover some or all of the relevant costs of the R&D under its commercial contracts with its Clients entered into in the course of its ordinary trading activities. Indeed, 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.”
“50. HMRC argued that their approach does not give rise to odd results on the basis that it does not follow from their analysis that s 1138(1)(c) applies where a taxpayer incurs ‘standalone’ R&D expenditure and seeks to recover the cost of that expenditure through its ordinary trading transactions at some later point in time as opposed to, as is the case here, under transactions which take place when the expenditure is incurred. However, I cannot see what basis HMRC have, on their own analysis, for drawing a distinction on the basis of the timing of the relevant ordinary trading transactions. In each case, the payments made by the customers or clients for the relevant services or products provided by the taxpayer could be used by the taxpayer to cover its expenditure on R&D which it uses for the purposes of that trading transaction. Moreover, from its terms, I can see no justification for the view that the application of s 1138(1)(c) is to be based on such fine and difficult distinctions.”
“i. at [47(2)], the Tribunal stated that the word ‘otherwise’ is intended to operate ‘as a form of sweep up provision to capture cases (a) where expenditure is not ‘met’ [by (a) or (b)]…but (b) is ‘met’ in a similar sense to that in which expenditure may be said to be ‘met’ by ‘a notified State aid’ or ‘grant or subsidy…’. As above, HMRC submit that the use of the word ‘otherwise’ creates a new and separate category, and this is supported by R v Uddin [[2017] EWCA Crim 1072 at paragraph 34 (‘Uddin’)] and BCM Cayman [LP and another v HMRC[2022] STC 1586 at paragraph 93 (‘Cayman’)]; ii. at [47(2)] the Tribunal takes support for the incorrect analysis from the use of the term ‘subsidisedexpenditure’ in s.1052(6) and in the heading of s.1138. The Tribunal acknowledges that the heading cannot control the meaning of the substantive provision but seemingly does attribute significance to it. Whilst a heading can be considered, its function is merely to serve as a brief guide to the material to which it relates, and may not cover everything falling within the provision to which it relates [See R v Schildkamp[1971] AC 1 at 10 and Naghshineh v Commissioners for HM Revenue and Customs[2022] EWCA Civ 19 at [41]]; iii. at [47(3)], the Tribunal notes that there must be a ‘clear link’ between the funding and the use of the funds in s.1138(1)(a) and (b) because of the phrase ‘obtained in respect of’. However, the Tribunal then says this reinforces its conclusion on s.1138(1)(c) which uses the word ‘met’, seemingly in the Tribunal’s view to mean the same thing. With respect, that logic does not follow. If the draftsperson intended to mean the same thing, they would have used the same wording. The fact that they chose to draft (c) differently should be respected in its interpretation. The ordinary meaning of ‘meet’ or ‘met’ in the Oxford English Dictionary encompasses being able to or sufficient to discharge or satisfy or fulfil a financial obligation. In the context of s.1138(1)(c) ‘met’ is equivalent to ‘discharged’ or ‘satisfied’ or ‘fulfilled’; iv. at [47(4)], it is not clear from the Tribunal’s analysis what would fall within (c), and whether it must be something akin to a grant or subsidy (i.e. something given without full consideration being given in return but which is not a grant or subsidy, which is difficult to envisage), or whether all that is required is that there is a ‘clear link’ between that which is given and that which is expended. A requirement of a ‘link’, which is a gloss on the statutory wording should be met in HMRC’s submission if R&D costs are incurred in delivering a project to a customer whose payments cover the R&D costs incurred for the project. Introducing a requirement that there is specific provision as to R&D in the contract would make it all too easy for taxpayers to get around this requirement and obtain the very generous relief. In any event, in each of the three projects before the Tribunal here, the price was increased to take account of the additional work that was required in order to deliver on the project. [Footnote: The Appellant has failed to adduce any evidence that would demonstrate these increases were attributable to anything other than R&D.] v. at [47(5)] the Tribunal mischaracterises HMRC’s analysis. HMRC’s position does allow for exploitation of the R&D for commercial gain. If, for example, a taxpayer undertakes R&D in January and then in April is able to exploit the expenditure in the context of a commercial contract with a customer, that would qualify for relief on HMRC’s analysis. There is, in HMRC’s submission, a clear distinction between a trader who incurs R&D in the course of carrying out a contract, and the sums from the contract cover those costs – where it can naturally be said the customer has ‘met’ the costs of the expenditure; and the example above where it could not be said that the expenditure incurred in January is ‘met’ by the sums received from the contract in April.”
“First, Perenco concerned a completely different statutory regime. The material provision being considered by the UT, paragraph 8 of Schedule 3Oil Taxation Act 1975 (‘OTA’), is structured differently to section 1138, and drafted differently. The UT’s comments on Quinn are clearly obiter and were without the benefit of full argument. The Appellant is, with respect, incorrect to state ‘the reasoning of the FTT in Quinn has now been expressly approved by the Upper Tribunal in [Perenco]…see at [75]’(paragraph [32] Appellant’s Skeleton Argument). The UT merely noted that ‘Our approach to this point is very similar to that of the FTT in [Quinn]…’. Second, there are little or no State Aid considerations underpinning the OTA and its drafting. The Witness Statement of Philip Hamblin …explains in detail how important the State Aid considerations were in the context of Part 13. Third, the policy incentives and drivers behind the two regimes are also very different. Paragraph 8 of Schedule 3 to the OTA is concerned with allowable expenditure. The Enhanced R&D Relief provisions on the other hand provide access to a very valuable, generous, and therefore carefully targeted, statutory regime that confers tax credits and relief. Fourth, the suggestion in [73] that, if HMRC’s analysis is correct, the draftsperson could have drafted the provision in simpler terms is not an appropriate approach to the statutory construction here. As noted above, Part 13 is a meticulously drafted and highly prescriptive regime [Gripple]. In drafting these provisions, Parliament had to ensure there was no additional State Aid (as explained in the Witness Statement of Philip Hamblin…), and had to do so in express and emphatic terms. The purpose, therefore, of s.1138(1)(a) and (b) is to inform the reader in clear terms of specific exclusions; and then (c) is an additional category to cover other expenditure met by third parties. Further, (a) works differently from (b) and (c): (a) prevents all expenditure incurred from benefiting from Enhanced R&D Relief; (b) and (c) do not exclude expenditure on the same project which is outside their scope. The fact that Parliament could potentially have achieved the same result with a differently drafted (c) does not mean it has no purpose. Even if there were a degree of surplusage, there are good reasons for it given the State Aid considerations. As Nourse LJ said in Omar Parks Ltd v Elkington[1992] 1 WLR 1270 : ‘It is perfectly true…that if that is the only function of the words…they could just as well have been omitted. If a long experience of legislative drafting had brought with it a conviction that an Act of Parliament never included words of surplusage, that would no doubt have been a persuasive point. But that is not our experience and I for one do not complain of it. An emphasis of the obvious, unnecessary to a judge who has had the benefit of argument, may yet be welcome to a busy practitioner who has not.’ [The footnote cites other cases to which we were not referred.]” ‘It is perfectly true…that if that is the only function of the words…they could just as well have been omitted. If a long experience of legislative drafting had brought with it a conviction that an Act of Parliament never included words of surplusage, that would no doubt have been a persuasive point. But that is not our experience and I for one do not complain of it. An emphasis of the obvious, unnecessary to a judge who has had the benefit of argument, may yet be welcome to a busy practitioner who has not.’ [The footnote cites other cases to which we were not referred.]”
“The use of that particular term indicates the scope of Condition E in general terms as then further explained in s1138, albeit that the use of that term in the heading to that section does not control the operation of the substantive provisions in that section.”
‘… the identification of the parties’ obligations is a matter of contract. But once their obligations have been identified, the nature or classification of those obligations, and in particular whether they answer a particular statutory description, is not necessarily concluded by the contract … The court is often called upon to decide whether a written contract falls within a particular legal description. In so doing the court will identify the rights and obligations of the parties as a matter of construction of the written agreement; but it will then go on to consider whether those obligations fall within the relevant legal description.’
“Sub-paragraph (6) requires that the expenditure is not incurred by the company in carrying out activities contracted to it by another person. This complements the rules relating to sub-contracted R&D in paragraphs 9 to 12, which allow the principal to claim R&D tax relief where R&D is contracted out, and prevents double relief for the same R&D.”
“[199] Plainly, the greater the level of disclosure, the greater the officer’s awareness can reasonably be expected to be. If a disclosure on a tax return includes all material facts and, in complex cases, an adequate explanation of the technical issues raised by those facts and the position taken in relation to those issues, it would be reasonable to expect an officer to be aware of an insufficiency. What constitutes reasonable awareness is linked to the fullness and adequacy of the disclosure – the expertise of the hypothetical officer remains that of general competence, knowledge or skill which includes a reasonable knowledge and understanding of the law.”
“61. The FTT directed itself, at [24] of the Decision, as to what constituted a PGP for the purposes of s 29(2) of TMA. In doing so, it drew on another decision of the FTT in Boyer Allen Investment Services Ltd v HMRC[2012] UKFTT 558 (TC) . Neither party argues that this self-direction was wrong in law. Importantly for present purposes, the FTT concluded that: (1) The practice has to be one adopted by taxpayers and HMRC alike ([24(1)]). (2) A practice will not be generally prevailing if it is not agreed, or respected, as a whole, either by HMRC failing to apply every element of the practice in every case where it should be applied, or by taxpayers adopting only those parts that are favourable to them, but disputing others ([24(5)]). (3) ‘Mere inactivity’ can, in appropriate circumstances, give rise to a practice. However, such an omission must be capable of articulation in the same way as a positive act so as to have both clarity and substance. Its parameters must be clearly defined so that the general acceptance amounts to the same unequivocal understanding ([24(8)]).” (1) The practice has to be one adopted by taxpayers and HMRC alike ([24(1)]). (2) A practice will not be generally prevailing if it is not agreed, or respected, as a whole, either by HMRC failing to apply every element of the practice in every case where it should be applied, or by taxpayers adopting only those parts that are favourable to them, but disputing others ([24(5)]). (3) ‘Mere inactivity’ can, in appropriate circumstances, give rise to a practice. However, such an omission must be capable of articulation in the same way as a positive act so as to have both clarity and substance. Its parameters must be clearly defined so that the general acceptance amounts to the same unequivocal understanding ([24(8)]).”
“The natural starting point is to look at the material published by HMRC in this area.”
“But each case will need to be judged on its particular facts. As part of any examination it may be useful to examine the degree of autonomy enjoyed by the person engaged, the ownership of intellectual property, and the economic risk in any arrangements.”
“NS agreed that the guidance required further review to give an indication of where the boundary lay between subsidised and nonsubsidised expenditure. The meaning of “subsidised” referred to expenditure being met directly or indirectly which was not particularly helpful as all expenditure is met indirectly in some way or other. Currently HMRC took the view that there needed to be a clear and direct link between the payment received and the qualifying expenditure.”
“…This means that the coverage is far wider than just a contract which specifies that R&D must be carried out, and to assist claimants my predecessor Neil Smiley (sic) provided an explanation as to how HMRC interpret this provision (perhaps a bit less widely than it could be interpreted) when the RDCC met on17 October 2013 …”
“I agree that it is good practice to provide these details, and I agree that as the question implies such documents and information are not a requirement. However, I think good practice is what HMRC will expect without requirement. Indeed, not providing details may be a sign that the claim should be considered for enquiry.”
“Note that HMRC has recently rewritten the relevant part of its guidance for the SME scheme (CIRD84250). Previously, the guidance said that in deciding whether subcontracting had taken place, it was important to consider who owned the resulting IP from the R&D work, who took on the risk for the R&D project's success, and what level of autonomy the SME had in carrying out the project. These factors are no longer referred to in the guidance, which now focuses on the contractual relationship of the parties: where an SME is contractually engaged to deliver a product or project, HMRC will regard that as subcontracting from an R&D perspective.”
“We fully support the Treasury and HMRC in trying to get better value for money from these reliefs and in combatting fraud and boundary-pushing. Reducing the generosity of the SME scheme may well reduce the level of fraud, though it will impact on honest claims as well. However we are concerned that new interpretations of ‘subsidised’ and ‘subcontracted’ expenditure will divert HMRC and honest taxpayers’ and advisers’ resources from the struggle against fraud; and actually damage the effectiveness of these reliefs. HMRC have in recent times been changing their interpretation of the existing rules of the more generous SME scheme in ways that are capable of acting almost as ‘catch-all’ provisions to deny relief. They have challenged claims that would have been legitimate under traditional interpretations, but have avoided bringing their new interpretations to a court or tribunal which could set a precedent against them. This has increased uncertainty and impaired the effectiveness of the relief. Now that the government has signalled that it intends to align the support for SMEs with the less generous arrangements for larger firms, there seems no further purpose in harrying SME claimants in this way.”
“2. SME relief is unavailable where expenditure on R&D is either ‘subsidised’ or ‘subcontracted’. The new interpretations treat as ‘subsidised’ anything which is done pursuant to an arms’ length profitable contract, and suggests that a business customer can ‘subcontract’ R&D work unknowingly. These interpretations move relief away from the companies who make the decision to undertake R&D, so reducing the effectiveness of the relief.”
“[198] But there may be other cases where the law and the facts (and/or the relationship between the law and the facts) are so complex that adequate disclosure may require more than pure factual disclosure: namely some adequate explanation of the main tax law issues raised by the facts and the position taken in respect of those issues.”
“Project” is defined as: “19. A project consists of a number of activities conducted to a method or plan in order to achieve an advance in science or technology. It is important to get the boundaries of the project correct. It should encompass all the activities which collectively serve to resolve the scientific or technological uncertainty associated with achieving the advance, so it could include a number of different sub-projects. A project may itself be part of a larger commercial project, but that does not make the parts of the commercial project that do not address scientific or technological uncertainty into R&D.” “Overall knowledge or capability” is defined as: “20. Overall knowledge or capability in a field of science or technology means the knowledge or capability in the field which is publicly available or is readily deducible from the publicly available knowledge or capability by a competent professional working in the field. Work which seeks an advance relative to this overall knowledge or capability is R&D.” “Appreciable improvement” is defined as: “23. Appreciable improvement means to change or adapt the scientific or technological characteristics of something to the point where it is ‘better’ than the original. The improvement should be more than a minor or routine upgrading, and 7 should represent something that would generally be acknowledged by a competent professional working in the field as a genuine and non-trivial improvement. Improvements arising from the adaptation of knowledge or capability from another field of science or technology are appreciable improvements if they would generally be acknowledged by a competent professional working in the field as a genuine and non-trivial improvement. 24. Improvements which arise from taking existing science or technology and deploying it in a new context (e.g. a different trade) with only minor or routine changes are not appreciable improvements. A process, material, device, product or service will not be appreciably improved if it simply brings a company into line with overall knowledge or capability in science or technology, even though it may be completely new to the company or the company’s trade. 25. The question of what scale of advance would constitute an appreciable improvement will differ between fields of science and technology and will depend on what a competent professional working in the field would regard as a genuine and non-trivial improvement.”