Summary of Decision — First-tier Tribunal (Tax Chamber)

Factual and Procedural Background

The Appellant appealed against closure notices issued by the Respondent on 16 May 2023 under paragraph 32 of Schedule 18 to the Finance Act 1998, which amended the Appellant's corporation tax returns for the accounting periods ending 31 July 2020 and 31 July 2021. The Respondent assessed that £8,704.85 was due because the Appellant was not entitled to the research and development (R&D) tax reliefs and payable tax credits it had claimed under the Chapter 2 R&D provisions of the Corporation Tax Act 2009 (CTA 2009).

It was common ground that the Respondent followed the statutory enquiry and closure notice procedures under Schedule 18 FA 1998. The Appellant had claimed (1) additional tax deductions under s.1044 CTA 2009 for qualifying R&D expenditure and (2) surrendered trading losses to obtain payable tax credits. The Respondent’s position was that the Appellant’s expenditure did not qualify as R&D for the purposes of the CTA 2009 and the relevant secondary legislation and guidance (the R&D Regulations and the BEIS Guidelines). The hearing was conducted before Judge Morgan and Judge Farooq. The Appellant was represented by Attorney Brown; the Respondent by Attorney Dingley. Evidence included witness testimony from Attorney Brown and Attorney Bacon and documentary bundles.

Legal Issues Presented

1. Whether the Appellant's claimed expenditure in the relevant accounting periods constituted "qualifying Chapter 2 expenditure" under CTA 2009 (i.e., whether the expenditure was attributable to qualifying in‑house R&D or contracted‑out R&D as defined in ss.1051–1053 CTA 2009).
2. Whether the Appellant's activities satisfied the BEIS Guidelines' tests for R&D: specifically, whether the projects sought an advance in overall knowledge or capability in a field of science or technology and whether there was scientific or technological uncertainty that required resolution beyond the capability of a competent professional in the field.
3. Whether, on the evidence, the Appellant met the statutory conditions (notably condition B of s.1052 and condition A of s.1053) that expenditure be attributable to relevant R&D.

Arguments of the Parties

Appellant's Arguments

• The Appellant asserted that it carried out R&D by developing innovative educational content, methodologies and an e‑learning delivery platform (based on open‑source software) to teach metallurgy and related practical skills. These projects, it submitted, extended overall knowledge and capability in the field of metallurgy and addressed a demonstrable skills and knowledge gap in industry.
• It relied on case studies describing course design, practical metallography work, failure‑analysis training and "bring your own material" projects to show systematic projects undertaken to resolve uncertainties in practice and teaching methods. The Appellant said these activities incorporated scientific and technological content (metallurgical science) and involved the application and adaptation of scientific principles.
• The Appellant submitted that planning, curriculum development, creation of ePhotographs and practical lab work were activities that collectively resolved scientific or technological uncertainties and therefore constituted R&D under the Guidelines.
• The Appellant relied on evidence from industry experts and feedback forms to show the courses produced industry‑recognised, innovative outcomes and endorsements by professional stakeholders. It also criticised the Respondent for lacking sufficient technical expertise during assessment and for procedural deficiencies in alternative dispute resolution.

Respondent's Arguments

• The Respondent maintained that, although metallurgy is a scientific field, the Appellant's activities were essentially the provision of education and training using existing, publicly available metallurgical knowledge rather than projects seeking to achieve an advance in overall scientific or technological knowledge or capability in the field.
• The Respondent relied on the statutory scheme (ss.1044, 1051–1053 CTA 2009), the R&D Regulations and the BEIS Guidelines to argue that qualifying R&D requires an advance in the field of science or technology and the resolution of scientific or technological uncertainty not readily deducible by a competent professional. It argued the Appellant had not demonstrated such an advance or uncertainty.
• The Respondent submitted that, even if some innovative delivery methods were used, improvement in educational delivery or training of people using existing scientific knowledge does not equate to R&D in the sense required by the Guidelines. The burden was on the Appellant to show the costs were attributable to qualifying R&D, and the Appellant had failed to do so.

Table of Precedents Cited

Court's Reasoning and Analysis

The tribunal set out the statutory framework (notably s.1044, ss.1051–1053 CTA 2009), the R&D Regulations and the BEIS Guidelines and explained the threshold for qualifying R&D under those instruments. The court recalled key passages of the Guidelines: that R&D occurs where a project seeks an advance in overall knowledge or capability in a field of science or technology; that an "advance" means an extension in publicly available knowledge or capability (not merely a company's internal knowledge); and that scientific or technological uncertainty is present only where the knowledge of feasibility or how to achieve an outcome is not readily available or deducible by a competent professional.

The tribunal accepted a number of factual findings for the Appellant: metallurgy is a scientific field; the Appellant developed an e‑learning platform, bespoke course materials, practical workshops and practical metallography exercises; it engaged industry mentors and produced teaching outputs (including ePhotographs); and industry witnesses and feedback forms supported the Appellant's work as addressing a vocational skills gap.

The tribunal then analysed whether those activities, as carried out in the relevant periods, fell within the statutory definition of qualifying R&D. Applying the Gripple approach, the tribunal examined the specific definitional conditions in the code (e.g., that qualifying expenditure must be attributable to relevant R&D undertaken by the company). It applied the Flame Tree explanation of "competent professional" to the question of whether the uncertainties claimed by the Appellant were such that they were not readily resolvable by a competent professional working in the field.

The tribunal concluded that the Appellant's activities were primarily the development and delivery of education and training that employed existing metallurgical science and techniques. The uncertainties and advances identified by the Appellant and its supporters were, in the tribunal’s view, advances in education and vocational training (a social science context), not advances in the publicly available scientific or technological knowledge or capability of metallurgy as a field. The tribunal emphasised that using science or technology as a medium to teach or transfer existing knowledge does not, of itself, amount to R&D; nor does extending the workforce or improving vocational competence equate to advancing the field’s publicly available scientific knowledge.

Because the tribunal found the Appellant had not demonstrated that its expenditure was attributable to relevant R&D as defined in the statutory provisions and the Guidelines, it was unnecessary to examine the specific costs claimed.

Holding and Implications

APPEAL DISMISSED

Holding: The tribunal dismissed the Appellant's appeal and upheld the Respondent's decisions in the closure notices that the Appellant was not entitled to the claimed R&D allowances/credits for the periods in question.

Implications: The direct consequence is that the Appellant's claimed R&D relief and tax credits were rejected and the tax adjustments in the closure notices stand. The tribunal did not find it necessary to adjudicate on the detailed allocation of costs because the threshold legal issue—whether the activities constituted qualifying R&D—was not met. The decision does not purport to set a new legal precedent beyond applying existing statutory definitions, the R&D Regulations, the BEIS Guidelines, and the cited authorities to the facts before the tribunal.

Document prepared from the tribunal opinion. All individual and entity names have been anonymised in accordance with the summarising instructions.