Megablue’s Research & Development Tax Credit Application
Megablue Technologies Ltd v Revenue & Customs [2022] UKFTT 24 (TC) appears to demonstrate how to lose an R&D tax credit on Liquidation.
The story begins on 2 November 2018 when Megablue Technologies Ltd (“the Company”) made a Research and Development (“R&D”) tax credit claim for the period to 30 June 2018. The claim was for payment of £123,416.90.
Comparison Of Taxation Of Research & Development With Entertaining
Under Section 1044 of the Corporation Tax Act 2009 if a company’s R&D expenditure qualified for extra tax relief then the total deduction against corporation tax would be 230%. From a tax point of view that could be relief entertained with considerable alacrity by a company Director looking to reduce their company taxable profits.
If you are talking tax, well it certainly beats, outflanks and outranks entertaining any day of your week, which usually manages to achieve the helpfully grand 0% tax relief from such a budget against taxable profits in light of Section 1298 of the Corporation Tax Act 2009. So perhaps think carefully (at least from a tax point of view) about how many bottles of Cristal you dish out to your customers.
Limitations On The R&D Tax Credit
In order to obtain the R&D tax credit the company needs to be a going concern and that means that under Sections 1046(2A) and 1057(4A) of the Corporation Tax Act 2009 the claim is not available if:
A company is not a going concern at any time if it is in administration or liquidation at that time.
Liquidating With The R&D Tax Credit
On 18 June 2019 the company entered Creditors Voluntary Liquidation, and on 19 August 2019 HMRC issued a closure notice disallowing the R&D tax credit claim. They did so on the basis that the company was in liquidation and as a result, the going concern condition in section 1057(2) was not met and the claim failed.
The Company said that HMRC had not made the payment due under the tax credit within 28 days and also had not opened an enquiry within 60 days. That was in accordance with HMRC’s guidance (at least at the relevant time) which said in most cases and also what the aims of HMRC were. Indeed as the Tax Tribunal mentioned this was a matter of “aspiration” and therefore it was not binding.
The Tribunal said that it was not in the business of supervising the ‘management’ of the R&D credit but it did not rule out that it might be open of the taxpayer to seek to judicially review the conduct of HMRC. As a result the appeal to the Tax Tribunal was dismissed.
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