Tribunal allows taxpayer's appeal in R&D case against penalty assessment for careless inaccuracy

03 May 2024. Published by Jasprit Singh, Associate

In H & H Contract Scaffolding Ltd v HMRC [2024] UKFTT 00151 (TC), the First-tier Tribunal (FTT) allowed the taxpayer's appeal against a penalty assessment as the inaccuracy in the tax return was not careless.


H & H Contract Scaffolding Ltd (H&H) appealed against a penalty assessment dated 21 September 2022, by which HMRC charged a penalty for a careless inaccuracy in H&H's corporation tax return for the tax period 1 July 2018 to 30 June 2019, under Schedule 24, Finance Act 2007 (FA 2007).

On 11 February 2021, an amended corporation tax return for the tax period ending 30 June 2019 was submitted to HMRC on behalf of H&H, which included a research and development (R&D) tax credit for £40,194 and a figure of £490,774 for R&D enhanced expenditure. On 6 May 2021, HMRC opened an enquiry into H&H's amended corporation tax return and asked for various information about the claim. On 22 June 2021, H&H's appointed agent provided a copy of an R&D Compliance Report answering HMRC's questions. There was further exchange of correspondence and Mr Andrew Thomas, the director of H&H, answered various questions raised by HMRC about the R&D claim.

On 21 July 2022, HMRC sent a penalty explanation letter to H&H and on 19 August 2022, H&H appealed and requested that the penalty be suspended under proposed 'SMART' conditions. HMRC notified H&H of the penalty assessment on 21 September 2022 and issued a closure notice on 23 November 2022, concluding that no R&D credits were due to H&H because the activities relied on in the R&D Compliance Report did not meet the definition of R&D. 

H&H appealed to the FTT.   

FTT decision

The appeal was allowed.

The FTT was critical of HMRC's approach and described HMRC's Statement of Reasons as a "confused document". Given such comments, it is not surprising that the FTT rejected  HMRC's case. The FTT noted that ordinarily  it is for HMRC to prove a careless inaccuracy and not for the taxpayer to establish a reasonable excuse. If HMRC wanted the burden of proof to be reversed it should have made that clear by relying on paragraph 18, Schedule 24, FA 2007, but it chose not to do so.

The FTT did not accept HMRC's argument that where the taxpayer cannot show it qualified for a given relief then it must follow that the taxpayer will have been careless. The FTT rejected this argument because, if correct, it would mean that the mere existence of an inaccuracy would result in that inaccuracy being deemed careless.

The FTT was satisfied that H&H took reasonable care to avoid an inaccuracy. The FTT accepted the explanation provided by Mr Thomas and noted that HMRC had failed to produce sufficient evidence to controvert his factual testimony. The FTT accepted that  H&H had used a reputable specialist company to make its R&D claim. Mr Thomas had also complied with HMRC's guidance (CH75160) and  provided full and accurate facts and checked the professional advice H&H had received so far as was reasonably possible. Mr Thomas had met the adviser concerned at a trade event for his industry and he had been advised that a claim could be made. Mr Thomas had given the advisor all of the relevant information and, to the extent that he was able to, had checked the claim before it was submitted.

In all the circumstances, H&H had demonstrated that it did what a prudent and reasonable taxpayer in the position of H&H would do.


This decision highlights the importance of taxpayers carefully considering  their eligibility for R&D claims before submitting such claims to HMRC. Taxpayers are required to take steps expected of a prudent and reasonable taxpayer in their position. Taxpayers need to consult competent advisors who have the necessary expertise to advise them appropriately and even then, depending on the circumstances, it may not be sufficient for a taxpayer to simply leave everything to their advisor.

This decision also highlights the importance of where the burden of proof lies. In this instance, the burden rested with HMRC and it failed to adduce sufficient evidence to establish that H&H had been careless.  

The decision can be viewed here.

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