HMRC’s denial of the relief was based on its recently tightened interpretation of subsidised R&D expenditure. It contested that, because Quinn’s R&D projects are typically carried out for clients, any expenditure on that project should be treated as subsidised.
Appealing the judgement, specialist R&D tax relief consultancy ForrestBrown argued that HMRC’s interpretation of the legislation was too broad and will narrow the scope of SME R&D tax relief.
Accepting the appeal in favour of Quinn, 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.”
HMRC had adjudged that, despite meeting the criteria of the SME R&D relief scheme, Quinn’s subsidisation of expenditure meant it was only eligible for the far less generous R&D Expenditure Credit (typically claimed by larger organisations).
Over the period in question, the difference in value between the two was calculated to be worth more than £1m.Which rather proves the old adage, don't let the bastards grind you down!
Tax does have to be taxing.
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