R&D claim tribunal: Realbuzz case

Importance of full disclosure in R&D claims

The recent First Tier Tribunal (FTT) in the Realbuzz Group Ltd v HMRC case underlines the importance to anyone looking to make R&D claims of providing full detailed disclosures to HMRC when making the claim.

This case highlights the important of disclosing the right information to HMRC in order to protect claimants from discovery assessments. It emphasises the need to provide a detailed R&D report with each period’s claim, even where information in relation to the same projects may have been provided in relation to a different period.

A high-quality R&D report provides sufficient disclosures and shows that the claimant has taken appropriate care, both of which significantly reduce HMRC’s ability to open enquiries, especially into earlier years.

Most taxpayers are aware of HMRC’s standard powers that allow them to open an enquiry into a return up to two years after the end of the accounting period, even where HMRC have already made an R&D tax credit repayment. What many taxpayers are not so aware of is that HMRC has more extensive powers that, in certain limited circumstances, allow then to raise discovery assessments into periods that are out of the enquiry window.

A key condition of this discovery assessment power, where it relates to an error that did not arise from “careless” or “deliberate” behaviour, is that an HMRC officer may only open a discovery assessment if they could not have been reasonably expected, on the basis of the information made available to them, to have been aware of the error during the normal enquiry window. The purpose of this is to strike a balance between HMRC’s right to collect the right amount of tax and the taxpayer’s right to finality and certainty.

The Realbuzz case: What happened?

The Realbuzz case examined this condition. Realbuzz Group Ltd made R&D claims for a number of projects, some of which were ongoing throughout both the 2020 and 2021 periods. HMRC had been provided with R&D reports supporting claims for each of the 2020 and 2021 periods. It was clear from the information provided in the reports that the qualifying nature of some of the projects included in the claims may be questionable. HMRC chose to enquire into the 2021 return, ultimately denying the full R&D claim, but did not enquire into the 2020 claim within the normal enquiry window deadline. Instead, HMRC raised a discovery assessment in 2023 to attempt to deny the 2020 R&D claim.

A key point was that the R&D claim, although covering multiple projects, was a single claim, and that if HMRC should have been aware of an error in relation to the 2020 R&D claim for certain projects, then they should have been able to infer that there may be errors in relation to other projects included in that claim, and therefore should have raised an enquiry within the normal timeframe. They did not have to be able to identify and quantify the entirety of the error.

Key takeaways for R&D claimants

The FTT concluded that:

It would have been obvious that some projects/sub-projects did not qualify even if others might have. As there was a single inaccuracy being a single excessive claim for relief, the hypothetical officer only had to conclude that the claim was excessive, he did not have to conclude that the entire claim was non-qualifying. Nor did he have to quantify the amount of the insufficiency of tax.

The tribunal therefore did not allow HMRC to raise a discovery assessment into the 2020 period.

It is important to note that the FTT was clear that the 2021 report and the enquiry into the 2021 period did not mean that HMRC had sufficient information to be able to infer that there were likely to be errors in the 2020 claim. It might raise a suspicion that the 2020 return should be looked at, but was not in and of itself information in relation to an error in the 2020 period. If Realbuzz had only provided an R&D report for the 2021 period, it is likely the discovery assessment would have been allowed, as HMRC would not have had sufficient information available during the normal enquiry window.

Protecting your R&D claim

Whilst some advisors have taken the view to only prepare an AIF rather than a supplementary R&D report, this case highlights the importance of supporting all R&D claims with a high quality R&D report. This demonstrates that the claimant has taken appropriate care in preparing the corporation tax return and ensures that they provide HMRC with the relevant information, helping to minimise the risk of a discovery assessment. Claimants must do this for each year of a claim, even when claims for different periods cover substantially the same projects. If you or your advisor are not preparing a supporting R&D report, you may be opening yourself up to further problems later down the line.