R&D tax relief •4 min read

Collins Construction Ltd v HMRC

MJ

Matthew Jones ACA CTA

Last reviewed September 2026 · Editorial standards

Tribunal
First-tier Tribunal (Tax Chamber)
Decided
21 October 2024
Judge
Judge Kim Sukul and Sonia Gable

The company won, on both points, in full. HMRC argued that a fit-out contractor’s R&D was paid for by its clients — so the expenditure was subsidised — and that the same payments meant the R&D had been contracted out to it. The tribunal rejected both arguments. HMRC has since said it accepts the decision, and rewrote the relevant manual pages.

What was at issue

Collins Construction is a fit-out and refurbishment contractor working under standard JCT contracts. It claimed SME R&D relief across 27 projects for the years ended 30 June 2018 and 30 June 2019. HMRC’s closure notices in September 2021 removed a £573,056.72 repayment claim and a £2,670,972.94 R&D tax credit claim.

HMRC did not dispute that Collins was an SME, and did not dispute that the work was R&D or that the other conditions were met (paragraph 13). It refused the claims on two limbs only (paragraph 12). The first: that client payments meant the expenditure was subsidised, because a commercial contract price indirectly meets the cost of the R&D inside it. The second: that anything a contractor does to discharge its contract is R&D contracted out to it by the customer.

Between 2021 and 2024 that pair of arguments was HMRC’s standard objection to claims from companies that develop while delivering for customers.

What the tribunal decided

The appeal was allowed (paragraph 75). Neither limb succeeded, and nothing was decided against Collins.

On subsidy, the tribunal declined to depart from the earlier decision in Quinn (London) Ltd, finding “striking similarities in both cases” (paragraph 50), and concluded that “the relevant expenditure was not subsidised expenditure for the purposes of section 1138” (paragraph 58). A price paid for a building is not a payment made to meet the cost of research.

On contracting out, the decision turned on what the parties had actually agreed. The tribunal found that “the bargain made between the parties is not for Collins to undertake R&D activities on behalf of the client” (paragraph 67). Expenditure is on contracted-out R&D where the activities “are carried out on behalf of another person” (paragraph 73) — and a client who wants a finished fit-out has not asked for research. The purpose of those conditions, the tribunal noted, is to prevent double relief by passing the ability to claim up the chain (paragraph 70), not to deny relief to everyone in it.

What it changes for a claim being prepared now

Two audiences should read this decision.

If you have an open enquiry on an old-scheme period and HMRC is running the subsidy or contracting-out argument, this decision and HMRC’s own revised guidance belong at the centre of the reply. HMRC’s manual now says payments from a principal do not subsidise R&D unless the payment is specifically linked to those activities, and that R&D incidental to the supply of a product or service is not contracted out. That is the opposite of the position that refused these claims.

If you did not claim for an old-scheme period because you were told the customer’s payments ruled you out, check whether the period is still open to amendment before assuming it is lost. Our guide to backdated claims sets out the runway and the notification trap that can close it early.

One caution. This is a decision about the old SME scheme. For accounting periods beginning on or after 1 April 2024 the merged scheme replaced both restrictions with a different statutory question: whether the customer intended or contemplated that R&D of that sort would be done when the contract was made. Winning the old argument does not answer the new one — see contracted-out R&D.

Has it been appealed?

No onward appeal has been reported, and no Upper Tribunal or Court of Appeal decision naming Collins Construction appears on the published record.

HMRC’s own position is on the record and is stronger evidence than the absence of an appeal. In the Research and Development Communication Forum minutes of 6 May 2025, HMRC states that it accepts the tribunal’s decisions in this case and in Stage One Creative Services and has updated its position and approach accordingly. It amended CIRD81650 and CIRD84250 on 27 February 2025, and both pages carry a note saying the guidance reflects HMRC’s view following recent First-tier Tribunal decisions.

Worth knowing, if this affected you: the same minutes record that HMRC has created no correction mechanism of the kind it once set up for reimbursed expenditure, on the footing that the tribunal disagreed with its interpretation without finding it baseless. A company whose position is now final does not get a way back.

Sources

First-tier Tribunal decisions bind only the parties to them and set no precedent. This entry describes the decision as it stood at the review date above, as general information rather than advice on your circumstances — see our terms. For an answer on your own facts, talk to us.