Gripple Ltd v HMRC - proof that you need to understand and apply the R&D tax legislation to your case, line by line.
What happened?
One director of Company A was paid by another company - Company B in the same group – and the cost was charged back to Company A. There was no dispute that the expenditure qualified, as staffing costs for SME additional R&D relief in all other respects.
However, HMRC argued that the recharged amount was not ‘emoluments paid by the company to directors or employees of the company’ – the key point was that the recharged amount was not paid ‘to’ the director. A claim as an ‘Externally Provided Worker’ could also not be made, as the individual was a director of Company A + B, and thus ineligible.
The outcome
The judgment found, reluctantly, in favour of HMRC on the basis that the costs should be disallowed. They found relevant extracts from the director’s personal tax returns showing all employment income came from Company B. The group could easily have arranged matters in such a way as to attract relief, but inadvertently failed to obtain the relief to which it might otherwise have been entitled.
The mere fact that the same economic result could have been achieved in a different, and more fiscally attractive, way could not help the taxpayer. The clear words of the legislation precluded relief for the transaction actually undertaken.
“…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.”
HMRC even accepted that, if Company B had only acted as a payment or salary agent of behalf of Company B, the relief would indeed have been available.
Case take away
This is a prime example that it's important to plan ahead to ensure you do not fall foul of the legislation.
How CT can help
If you have any initial queries please don't hesitate to contact your usual CT contact, or rdtax@ct.me.