Tax practitioners will be familiar with various cases won by HMRC at Tribunal by arguing that there is no evidence of R&D, owing to a lack of Competent Professional (CP). Hadee, AHK and Flame Tree Publishing are three examples.
However, in Get Onbord Ltd v HMRC [2024] UKFTT 617 (TC), the First-tier (Tax) Tribunal disagreed with HMRC’s narrow definition of what it believed to be such a person. In one of the most insightful points to arise from the case, the Tribunal confirmed that it was happy to accept evidence from the appellant’s witness, despite their lack of formal qualification in the relevant field.
Key points
- The FTT agreed the burden of proof was, at the beginning, on the appellant, but there will come a point or points in the trial of an issue where the “evidentiary burden” shifts, and it is for HMRC to take on the burden.
- It is not necessary for a “Competent Professional” to have formal qualifications.
- The use of existing code or technologies does not mean there can be no R&D.
Background
HMRC had opened an enquiry into Get Onbord Ltd’s (GOL’s) claim. Correspondence then went back and forth in a manner that will be familiar to many involved in HMRC R&D enquiries. Themes from the case were that the case owner had no relevant expertise, Chief Digital Information Office (CDIO) were consulted, HMRC were unsure of the advance, HMRC would not agree to a meeting, the case owner (despite his lack of expertise) asserted that the work “was readily deducible for a competent professional” and the product “used existing processes and technologies that were readily deducible to produce a new innovative product.”
According to the judgment, the company’s agent responded several times in detail, and also included commentary from an expert with relevant domain expertise. HMRC, however, concluded that no R&D had taken place and failed to give reasons for that view.
A statutory review was undertaken and concluded that there was no evidence of scientific or technological advance.
Two interesting points arose.
First, since HMRC’s witness was unable to help the Tribunal given his lack of technical knowledge, HMRC asked for permission to make written submissions. The FTT agreed and put three questions to HMRC. It then gave the appellant an opportunity to respond to HMRC’s answers.
Some might think it odd that the FTT agreed to this, having already stated the burden of proof and the shifting of the burden. Tribunals do not as a rule do this. Once they have decided that an appellant has not proved its case due to the lack of a suitably qualified witness, they do not offer the appellant a further opportunity to provide written evidence.
Secondly, it was while the written submission was being prepared that HMRC discovered that the appellant was in liquidation. The CP, Mr Cahill, therefore had no standing to bring the appeal or act in it. The liquidator retrospectively agreed that Mr Cahill could act and give evidence and argued that there was no need to abandon the proceedings. The Judge agreed. If the case was abandoned, then it would simply be brought again in exactly the same manner. Nothing would change.
Decision
The Tribunal set out what the appellant should prove, what amounted to relevant evidence – including the point at which the evidential burden should shift, citing the Court of Appeal case Wood v Holden – and whether the company had in fact proved its case on the balance of probabilities.
The Tribunal appears to have had no problem in concluding that the company proved its case, and HMRC had provided no evidence to the contrary.
Key takeaways from Get Onbord Tribunal
This is the first FTT case where HMRC’s view of what makes a CP has been challenged. HMRC’s belief that they ought to have formal qualifications was given short shrift. The FTT found that sufficient experience in the area was enough to make someone a CP, and they found Mr Cahill to be “an impressive witness”.
As an aside, the CP’s original witness statement was largely given over to complaining about HMRC’s enquiry process and lack of technical expertise. The Tribunal rightly put that aside since it was not for them to consider. Their only role was to consider whether HMRC had applied the existing law correctly in this case.
The legal burden of proof in cases such as this rests with the appellant. But as the Tribunal decided, the evidential burden can change. HMRC failed to recognise this, believing that they could simply say “there is no evidence of R&D”. Just as a bald assertion from a claimant would be unsatisfactory, such an assertion from HMRC was also found to be unsatisfactory.
Final word
The Tribunal, while recognising that it was not its place to say how enquiries should be undertaken, suggested the proceedings could have been more straightforward, or even avoided, if both sides had “put their scientific cards face up on the table”. However, HMRC do not, as a rule, put any scientific analysis and evidence on the table. This is perhaps something that should be explored at ADR, referencing the judge’s suggestion. One would hope that any mediator might agree that it is an avenue worth exploring.
It might also be useful if HMRC were to recognise the shifting of the evidential burden at the enquiry stage, rather than it being ignored until Tribunal. Of course, since HMRC adopted a very narrow view of a CP then it is understandable that it would accept no evidence. However, evidence was also provided from a CP through the agent.
Listen to our podcast
In this podcast, we discuss the facts and key takeaways from four R&D Tax Tribunals: Get Onbord Ltd, Tills Plus Ltd, Flame Tree Publishing and H&H Contract Scaffolding.
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