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Hope for SME companies claiming R&D Tax Relief

In what may prove to be a turning point in the R&D tax relief system, a judge has deemed HMRC’s refusal of a company’s claim to be ‘wholly out of kilter with the overall SME scheme’.

HMRC initially refused the construction company’s R&D claim, basing the decision on its interpretation of ‘subsidised’ expenditure – essentially, as the claimant company had typically carried out much of its R&D work in the course of client-led projects, HMRC argued that this was subsidised, and therefore not eligible for the higher rate of tax relief. The effect on the company in this situation was to decrease the value of its claim by £1m.

The company successfully appealed the decision, and the comments of the judge certainly give hope to how future claims may be viewed by HMRC as a result. What was most interesting to note was the judge’s remark that HMRC’s interpretation of ‘subsidised’ had been taken too broadly, and even more heartening was the recognition that R&D work, particularly by SME companies, could be seen in conjunction with ‘commercial gain’.

In short, this case may well lead the way for more SMEs to claim for development work they need to undertake to stay in business and thrive in these uncertain times, and may well ensure that many more companies receive the lifeline which is R&D tax relief.

For more information, click here to learn more about R&D Tax Credits and our R&D service.

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