MW High Tech Projects UK Ltd
| Jurisdiction | UK Non-devolved |
| Judgment Date | 05 December 2023 |
| Neutral Citation | [2023] UKFTT 1040 (TC) |
| Court | First-tier Tribunal (Tax Chamber) |
[2023] UKFTT 1040 (TC)
Tribunal Judge Anne Redston, Ms Jo Neill
First-Tier Tribunal (Tax Chamber)
Corporation tax – Research and Development Expenditure Credit – company filed accounts on the basis that it was not a going concern – RDEC claim was denied by HMRC – whether accounts were incorrect – whether subsequent change to the law was relevant – taxpayers appeal dismissed – CTA 2009, s. 104S
In MW High Tech Projects UK Ltd [2024] TC 09011, the First-tier Tribunal (FTT) agreed with HMRC that the statutory provisions were clear and that filing accounts that showed a company was not a going concern prevented a claim for the Research and Development Expenditure Credit (RDEC). Amendments to the legislation made subsequent to the events in the case had no bearing, as these amendments were not retrospective. Drawing up the relevant accounts on a non-going concern basis was not a breach of the relevant accounting standards, and the taxpayer’s appeal was dismissed.
These can be summarised briefly:
- The taxpayer submitted an RDEC claim for approx £1.9m in its corporation tax return for the year ended 30 December 2017.
- The company sought a cash payment of the RDEC under step 7 of CTA 2009, s. 104N(2).
- The taxpayer company’s accounts for both the years ended 30 December 2017 and 2018 stated the company was not a going concern.
- HMRC refused the RDEC claim for 2017 on the basis that CTA 2009, s. 104S restricts the cash payment of RDEC to companies that are going concerns.
- HMRC paid the taxpayer an amount of RDEC for 2018; in paying that claim they noted that the 2019 accounts showed the company as a going concern.
It was agreed that on a literal reading of the relevant provision, CTA 2009, s. 104S, with “going concern” as defined in CTA 2009, s. 104T, prevented the taxpayer obtaining a payment of RDEC credit for 2017. The taxpayer sought to argue that a “purposive” approach to the legislation was required, and that amendments made in Finance Act 2023 indicated the legislation was previously flawed, and should be read to allow the RDEC claim for 2017. Failing that, the taxpayer contended that its accounts for 2017 and 2018 could not be relied upon and should not have been drawn up on the basis the company was not a going concern. The taxpayer further argued that there had been a “prior period adjustment” (PPA) in the 2019 accounts which should be taken into account. There were then additional submissions made which the FTT determined it had no jurisdiction to consider.
The taxpayer considered that a literal reading of the legislation led to companies that filed accounts on the basis that they were not going concerns being treated differently to those in administration or liquidation, and this was not the intended purpose of the legislation. The FTT, though, noted that it had to be “abundantly sure” that legislation did not meet its intended purpose in order to “rectify” what the legislation said. The FTT had not been provided with any evidence that Parliament had not intended there to be a difference between companies filing accounts on the basis that they were not a going concern and those in administration or liquidation. The FTT rejected the taxpayer’s argument.
As far as the 2023 amendments to the legislation were concerned, the FTT was satisfied that, as they were not retrospective , they had no bearing on the case.
In regard to the correctness of the accounts, the tribunal reviewed the relevant accounting and auditing standards at some length. The taxpayer had ceased all new tendering activities, and had stated in its 2017 accounts its intention to cease trading once its existing contracts were complete. Similar statements were made in the 2018 accounts, but by the 2019 accounts the company had decided to resume seeking new work. The FTT was satisfied that drawing up the 2017 and 2018 accounts on the basis that the company was not a going concern was not a breach of accounting and auditing standards.
The FTT heard evidence from the company’s finance director that he knew the 2017 and 2018 were incorrect when he signed them. However, the FTT rejected this evidence as not credible; it could not backed up by any contemporaneous written documentation. The FTT found that the finance director had only changed his view on the going concern question after he understood the impact on the RDEC claims.
The argument that a PPA had been made in the 2019 accounts was dismissed; the FTT found nothing in those accounts which qualified as a PPA.
The FTT rejected all the taxpayer’s arguments and the appeal was dismissed.
Under CTA 2009, s. 104T a company is a “going concern” if its latest published accounts show that it is. The RDEC claim for 2017 was made in the corporation tax return for 2017 submitted on 4 April 2019. The latest published accounts at that date were the 2017 accounts, filed at Companies house the day before. However, under CTA 2009, s. 104S(3) if a company becomes a going concern by the last day on which it could amend its tax return, it would be allowed to claim the credit. That date was 30 December 2019. On that date, the latest published accounts were those for 2018, which were again prepared on the basis the company was not a going concern. Accordingly, the 2017 RDEC claim failed. The 2019 accounts, showing the company was a going concern, were available prior to 30 December 2020, allowing the 2018 RDEC claim to succeed.
Whilst it is tempting to see the taxpayer as a victim of unfortunate timing, the decision had been taken for the company to wind down its operations and cease trading. It is very clear that taking such actions, and no longer operating on a going concern basis, deprives a company of the ability to claims a cash RDEC payment. Only the reversal of the decision not to tender for new contracts in 2019 allowed the taxpayer’s claim in 2018 to succeed. It does not require much imagination to believe the change in approach reflected in the 2019 accounts was made after the impact on the RDEC position was realised. It appears the FTT considered there was wording included in the 2019 accounts designed to support the proposition that the company was a going concern in 2017 and 2018. However, this did not amount to a PPA and could not displace the simple fact that the published accounts to be taken into account for the 2017 claim did not show that the company was a going concern. The other arguments put forward by the taxpayer, including those on the purpose of the legislation, fell into the ‘ambitious’ category, and it is not surprising the FTT rejected them.
Comment by Glyn Fullelove, Lead Tax Writer at Croner-i Ltd.
Mr Nigel Bolton of R&D Tax UK Ltd appeared for the appellant
Mr Martin Priestley, Litigator of HM Revenue and Customs' Solicitor's Office appeared for the respondents
[1] On 4 April 2019, MW High Tech Projects UK Ltd (“the Appellant”) filed its corporation tax (“CT”) return for the year ended 30 December 2017. That return included a claim for a Research and Development Expenditure Credit (“RDEC”) of £1,934,343.19.
[2] The statutory provisions relating to RDEC claims are in Chapter 6A of the Corporation Tax Act 2009 (“CTA 2009”). Within that Chapter, s 104S provides that a company is not entitled to a RDEC if it was not a going concern at the relevant time; that provision is subject to s 104T.
[3] On 3 May 2021, HM Revenue & Customs (“HMRC”) refused the claim because the Appellant's statutory accounts (“accounts” or “financial statements”) for the years ended 30 December 2017 and 2018 both stated that the Appellant was not a going concern.
[4] On behalf of HMRC, Mr Priestley submitted that given the “plain wording” or “literal meaning” of the statutory provisions and the facts of the case, no payment was due as a matter of law. On behalf of the Appellant, Mr Bolton put forward the following grounds of appeal, some of which were in the alternative:
- The statutory provisions had to be interpreted purposively, and this displaced their literal meaning; he relied in particular on Inco Europe Ltd v First Choice Distribution [2000] UKHL 15, 1 WLR 586 (Inco).
- Parliament has now agreed that s 104T contained an error and the Tribunal should give effect to that correction.
- The Appellant's 2019 accounts contained a prior period adjustment which had retrospective effect, so as to amend the 2017 and 2018 accounts.
- Despite what was stated in the accounts, the Appellant was a going concern in both years under the relevant accounting rules.
- The Appellant's going concern status was also in accordance with the relevant International Standard on Auditing, which was ISA 570.
- At the time the Appellant's director, Mr Barrett, signed the accounts for 2017 and 2018, he held the view that the Appellant was a going concern, but was pressured by the auditors to state the opposite.
- HMRC had paid an RDEC claim made in the Appellant's 2018 CT return, and by so doing had accepted that the Appellant was a going concern on the relevant dates.
- HMRC deliberately delayed opening an enquiry into the 2017 RDEC claim in order to prevent the Appellant being able to correct the position by refiling its accounts within the relevant time limit.
- HMRC could and should pay the amount of the RDEC claim to the Appellant under Extra Statutory Concession B41.
[5] We considered each of those grounds of appeal, but refused them, for the following reasons:
- Although the relevant provisions were to be interpreted purposively, that did not allow the Tribunal to ignore the words of the statute, and Inco has no application.
- Although s 104T was amended by Finance Act 2023, those provisions were not retrospective. The Tribunal had no jurisdiction to treat the amendment as applying to 2017 and 2018.
- There was no prior period adjustment (PPA) in the Appellant's 2019 accounts, and a...
To continue reading
Request your trial