Collins Construction Limited v The Commissioners For HMRC
Decision date: 21 October 2024
Neutral citation: [2024] UKFTT 951 (TC)
Overall AI summary confidence: medium
Short overview
This short overview is intended to summarise the case, issues and outcome so far as they are supported by the judgment.
AI confidence in this short overview: medium
This Tribunal allowed Collins Construction's appeal against HMRC closure notices that had denied SME R&D tax relief for periods ending 30 June 2018 and 30 June 2019, restoring the claimed relief. Central issues were whether the expenditure was "subsidised expenditure" under CTA 2009 s1138(1)(c) and whether it was incurred in activities "contracted out" to Collins for ss1052/1053 purposes; the Tribunal found neither condition was met. The decision applied the reasoning in Quinn, concluding ordinary client payments under commercial JCT contracts did not amount to subsidy of the specific R&D expenditure and that Collins carried out R&D at its own risk rather than on behalf of clients.
Ratio decidendi
This summary is intended to identify the ratio decidendi, meaning the legal reasons for deciding and the binding part of the decision.
AI confidence in this ratio decidendi summary: medium
The Tribunal's ratio is that s1138(1)(c) must be read with (a) and (b) and requires a clear link between a third party's payment and the specific R&D expenditure (i.e. effectively funding that meets that expenditure), so routine payments from clients under commercial contracts do not automatically make the contractor's R&D "subsidised". Further, "contracted out" under ss1052/1053 requires that the R&D activities be carried out on behalf of another; where a contractor retains IP, bears economic risk, and undertakes R&D to solve issues arising in delivery without contractual requirement to undertake R&D for the client, the Contracted Out Condition is not satisfied.
Obiter dicta
This summary is intended to identify obiter dicta, meaning observations made by the way that were not necessary to deciding the case and are not binding.
AI confidence in this obiter dicta summary: medium
The Tribunal endorsed the use of Explanatory Notes and prior FTT/UT authorities (notably Quinn, Perenco, Redevco) in construing "subsidised" and "contracted out" within the SME R&D regime and commented on the architecture and policy rationale distinguishing SME enhanced relief from the RDEC regime.