R&D tax relief •13 min read

Environmental Services Ltd v HMRC

MJ

Matthew Jones ACA CTA

Last reviewed September 2026 · Editorial standards

Tribunal
First-tier Tribunal (Tax Chamber)
Decided
10 September 2026
Judge
Tribunal Member Ann Christian and Tribunal Judge Judith Harrison

The appeal was dismissed, and the way it was dismissed is the point. Environmental Services Limited (“ESL” in the decision) claimed SME R&D relief on two waste-handling projects for the periods ended 31 July 2020 and 2021. The tribunal accepted its additional yard foreman as a competent professional. It accepted, on this fact pattern, that the plan he carried in his head was a plan, while finding that nothing showed it “aimed to resolve scientific uncertainties” (paragraphs 85 and 86). It refused HMRC’s case that the work was merely routine “in the sense of ordinary day-to-day operations” (paragraph 99). The claim failed anyway: nobody had set out the state of knowledge in the field, the question it left open, or what the money bought.

We take the decision further in a separate article, on what an accepted competent professional and an accepted plan are worth without a baseline.

What was at issue

Two questions: whether the activity “qualified as research and development for tax purposes” and, if so, “the extent to which ESL’s expenditure qualified for tax relief” (paragraph 4). The company carried the burden on both, to the balance of probabilities (paragraph 5). The claim sat in Chapter 2 of Part 13 CTA 2009, the old SME scheme. HMRC disputed only Condition D of section 1044 (paragraph 44); section 1053 was agreed irrelevant, so the live provision was Condition B of section 1052 (paragraphs 46 and 52).

The company collects and transports waste and does not process it (paragraph 8). In July 2019 it won a contract to remove waste from the M1 smart motorway upgrade, collected at night while disposal sites were shut (paragraph 15). Two projects followed. The first, “Loading, Agitation and Separation Methods of Effluent, Toxic and Recyclable Materials”, covered nozzles, pump enhancements and sludge reaction units; the witness evidence concentrated on two storage tanks using propeller and water agitation and polymer separation. The second was agitation modifications to a collection vehicle the company had designed itself (paragraph 26). No monetary figure appears in the decision.

How the dispute got to a hearing

HMRC issued closure notices under Schedule 18 to the Finance Act 1998 for both periods, disallowing the enhanced expenditure and, with it, the credits (paragraphs 1 and 2). Their validity was accepted (paragraph 3).

The decision gives neither the enquiry-opening nor the closure-notice date, which is worth stating rather than inferring. The appeal reference is TC/2024/02195, so on its face it reached the tribunal in 2024. It was heard at Manchester on 17 and 18 June 2026 and released on 10 September 2026, before Tribunal Member Ann Christian and Tribunal Judge Judith Harrison — printed in that order, member before judge.

Two witnesses gave evidence: a director and joint owner, and an additional yard foreman. Both were found “intelligent, articulate and truthful”, and “their evidence was unchallenged by HMRC” (paragraph 6). There was “no dispute about the facts” (paragraph 7).

What each side argued

The company’s case was that the projects were not routine waste management. Both involved uncertainty that “could not be resolved through routine industry knowledge or existing methods”. The work was “systematic and experimental, rather than a routine business activity”. Both witnesses were competent professionals, and “[l]imited contemporaneous evidence should not be fatal to the appeal” (paragraph 37). On costs, leased equipment could qualify in principle (paragraph 105), and the tribunal should apportion on a just and reasonable basis (paragraph 106).

HMRC said four things had not been shown, in the decision’s own compressed wording. That the projects “were started with the intention to make advance”. That they were “conducted according to set plan which was intended to achieve an advance by addressing scientific or technological uncertainties”. “[W]hat the technological uncertainties that the projects sought to address were.” And “[w]hat the base line level of knowledge in relevant field was” (paragraph 38). It added that the expenditure had not been shown to relate to the projects (paragraph 39), and that neither witness was a competent professional (paragraph 78).

The provision the case turns on

Section 1044(1) CTA 2009 gave relief to a company meeting conditions A to D. Condition D, in section 1044(5), was “that the company has qualifying Chapter 2 expenditure which is allowable as a deduction in calculating for corporation tax purposes the profits of the trade for the period”. Section 1051 defined that by reference to sections 1052 and 1053, and section 1052(3) provided: “Condition B is that the expenditure is attributable to relevant research and development undertaken by the company itself.” The text was identical at both period ends.

“Research and development” runs through a chain: section 1041 CTA 2009, section 1138 CTA 2010 and section 1006 ITA 2007 (paragraphs 53 and 54). Regulation 2 of SI 2004/712 provides that activities “that do not fall to be treated as such in accordance with those guidelines are not research and development”. It was common ground that the Guidelines “carry the force of law as tertiary legislation” (paragraph 56).

Guidelines paragraph 6 carries the reasoning. An advance is one “in overall knowledge or capability in a field of science or technology (not a company’s own state of knowledge or capability alone)”, measured against what is publicly available or readily deducible in the field (paragraphs 61 and 63).

What the tribunal decided

The competent-professional question split two ways. “[T]he Guidelines do not mandate that a competent professional must hold specific qualifications or expertise” (paragraph 79). The director was refused: her “experience is in running a waste disposal business”, and “[s]he was not able to explain in detail the technical aspects of the two projects”. The tribunal added that she understood those aspects “at a high level” and “had a detailed understanding of their commercial drivers” (paragraph 80). The foreman was accepted: he “had approximately 40 years’ practical experience working with heavy vehicles, tanker systems and waste-handling equipment” (paragraph 81).

Then the sting. His evidence “did not identify with sufficient precision the state of existing scientific or technological knowledge in the relevant field”, nor “the particular scientific or technological uncertainty said to arise from that state of knowledge” (paragraph 82). Nor did it show “why the solutions ultimately adopted would not have been readily deducible by a competent professional working in that field” (paragraph 82).

On the plan, the company won a point most claims lose. There was no written plan; the foreman’s evidence was that the plans “were kept inside his head” (paragraph 27). The tribunal held: “Given this fact pattern, we accept that ESL had a method or plan, albeit not one that was written down” (paragraph 86). That did not save it. Applying Hadee Engineering on the “formulation of a plan”, it found no evidence of “a plan which aimed to resolve scientific uncertainties” (paragraph 85).

The claim failed on the advance. “ESL failed to establish that it was seeking an advance”, because the evidence showed “practical problem-solving in response to operational and commercial challenges” (paragraph 90). The improvements “were to its operations rather than appreciable improvements to the underlying field of waste management technology” (paragraph 90). The purpose of the projects “was to enable ESL to deliver the M1 contract” (paragraph 91).

Three findings close the alternatives. The work involved “experimentation and trial and error”, the decision’s words for it, but “[e]xperimentation alone does not constitute R&D for tax purposes” (paragraph 92). “The existence of variable operating conditions does not, without more, amount to a technological uncertainty” (paragraph 94). And: “Nor was the Tribunal provided with a clearly articulated technological baseline from which any advance could be measured” (paragraph 95). HMRC’s routine case was refused in terms: “We reject HMRC’s characterisation of the activities as merely routine in the sense of ordinary day-to-day operations” (paragraph 99). The tribunal then drew the line the company was entitled to have drawn: “We emphasise that our conclusion is not that ESL did no innovative work” (paragraph 101). What had not been discharged was the burden of showing that the work was R&D as the legislation and the Guidelines define it.

Quantum was decided in the alternative, and two points there are new to this register. The tribunal held: “[E]ven if we had concluded that the projects constituted qualifying R&D activities, we would not have been satisfied that ESL established the amount of qualifying expenditure claimed” (paragraph 102).

The first is hired plant. Some invoices covered hire of what appeared to be plant and machinery. HMRC submitted that the equipment “was not consumed as part of the R&D process, and as such could not qualify for relief as a consumable”, and the tribunal agreed. Leases of plant and machinery have “specific tax regimes” of their own, so on the company’s reading “a taxpayer could potentially get tax relief more than once for the same expenditure” (paragraph 105). The tribunal added at once that “[t]here was no suggestion, and we make no inference that ESL was attempting to claim tax relief more than once for the hiring costs” (paragraph 105).

The second is apportionment. The tribunal would not “determine qualifying expenditure on a just and reasonable basis in the absence of evidence demonstrating what expenditure was attributable to qualifying R&D activities”; “[t]he burden remained on ESL to establish the factual basis for any such apportionment” (paragraph 106).

Paragraph 110 is why the decision is worth reading. “Our conclusion is not based on the absence of contemporaneous records.” Missing documentation “inevitably limited the Tribunal’s ability to evaluate the precise activities undertaken”. But: “We accepted the witnesses as truthful and have taken their evidence at its highest. Even on that basis, the statutory requirements are not met.” The appeal was dismissed (paragraph 111).

What HMRC did afterwards

Nothing, on the published record. The CIRD manual’s dated change log was checked on 18 September 2026, and its most recent entry is 25 August 2026 — sixteen days before this decision was released. No guidance change can yet be attributed to it.

The decision cites no CIRD paragraph at any point, reasoning from the statute and the Guidelines only. The one tribunal-attributed change in the 2023 to 2026 log remains 27 February 2025, to CIRD81650 and CIRD84250.

What it changes for a claim being prepared now

  • An accepted competent professional is not the same as sufficient evidence. Paragraph 82 names what his evidence had to cover: the state of knowledge in the field, the question it left open, and why the answer was not readily deducible. Put those three to the person in writing while the work runs.
  • An unwritten plan can be a plan, but it has to aim at something. Paragraph 86 softens how Hadee Engineering is usually put in an enquiry. It buys nothing alone: paragraph 85 wanted evidence that the plan aimed at a scientific or technological question.
  • Separate the contract from the technology. Paragraph 91 finds the purpose was to deliver a customer contract. Commercial pressure makes work happen, not qualify.
  • Hired equipment was held not to be a consumable item, and the holding was in the alternative. Even if the projects had qualified, the tribunal agreed with HMRC that the hired equipment “was not consumed as part of the R&D process, and as such could not qualify for relief as a consumable” (paragraphs 102 and 105). Section 1125, which the decision does not itself cite, covers computer software and “consumable or transformable materials”; equipment hired and handed back is neither. Take it out of the schedule first.
  • Keep the time records. Paragraph 106 shuts the door most unevidenced claims hope to leave open. Percentages with no workings are not rescued by asking a tribunal to be reasonable.

The decision turned on the old SME scheme and the 2010 Guidelines, but the Guidelines tests are not scheme-specific. The same tests, in the 7 March 2023 revision, govern the merged scheme in Chapter 1A of Part 13 and Enhanced R&D Intensive Support in Chapter 2. ERIS is for a loss-making SME whose relevant R&D expenditure is at least 30% of its total relevant expenditure; every other company, including a large R&D-intensive one and a profitable SME, claims the merged scheme. When the period began separates old scheme from current, the cut falling at periods beginning on or after 1 April 2024, and settles nothing else. Section 1125 still turns on “consumable or transformable materials”, so paragraph 105 reads across.

Where it sits against the other decisions

It draws on four of this register’s entries and distinguishes none. It sets out the competent-professional formulation from Flame Tree Publishing, which HMRC put to it: “appropriate qualifications, experience and up-to-date knowledge of the relevant scientific and technological principles involved” (paragraph 74). The formulation was HMRC’s own. It appears at Flame Tree [66], as counsel’s skeleton argument, and was endorsed at [68], where that tribunal had “no hesitation in agreeing with HMRC”; this decision pins it to [68] and attributes it to the tribunal there. It records the formulation without saying in terms that it adopts it, and at paragraph 79 it adds that the Guidelines mandate no particular qualification. It then reaches the opposite result, accepting a yard foreman whose qualifications are City & Guilds and an ONC in motor vehicle engineering (paragraph 21) and whose expertise the tribunal was satisfied of on his “approximately 40 years’ practical experience working with heavy vehicles, tanker systems and waste-handling equipment” (paragraph 81). That counterweight is usually Get Onbord, which this decision never cites.

It agrees with Beer Express: the reading of Guidelines paragraph 9 against paragraph 6 “mirrors what was said by the First-tier Tribunal in Beer Express” (paragraph 69). It quotes Tanglewood Care Services and adopts it (paragraphs 70 and 88), five weeks after release — the first application of Tanglewood we have found, rather than another report of it. It names that case as “Tanglewood Care Homes”; the appellant is Tanglewood Care Services Limited.

On Hadee Engineering it goes both ways, applying the plan requirement at paragraph 217 and then holding, on this fact pattern, that a plan need not be written down — while finding that nothing showed a plan “which aimed to resolve scientific uncertainties” (paragraphs 85 and 86).

Has it been appealed?

No onward appeal has been reported as at 15 September 2026, and no Upper Tribunal decision naming this company appears on the published record. An application for permission “must be received by this Tribunal not later than 56 days after this decision is sent” (paragraph 112). The sent date is not on the face of it, and release was 10 September 2026, so the window cannot yet have closed. This entry is diarised for re-check.

This is a First-tier Tribunal decision on its own facts: it binds only the parties and sets no precedent. It is the cleanest published illustration of a claim losing with every excuse removed: truthful witnesses, an accepted competent professional, an accepted plan, and work the tribunal refused to call merely routine in the sense of ordinary day-to-day operations. It sits with the R&D tax case-law register.

Sources

  • Environmental Services Ltd v HMRC — [2026] UKFTT 1301 (TC), printed on the face as [2026] UKFTT 01301 (TC); TC 10015; TC/2024/02195; released 10 September 2026. All unattributed paragraph numbers refer to it, verified against the Akoma Ntoso XML.
  • Section 1044, section 1051 and section 1052 CTA 2009 as at 31 July 2021; the same text applied at 31 July 2020 (1044, 1052). All were superseded for periods beginning on or after 1 April 2024.
  • Section 1125 CTA 2009, the definition behind paragraph 105, and the current version, which adds data licences and cloud computing services but keeps “consumable or transformable materials”.
  • Section 1044 CTA 2009 — the current Chapter 2 conditions: Condition A at subsection (2) is “that the company is a small or medium-sized enterprise in the period”; Condition B at subsection (2A) is that the company “meets the R&D intensity condition in the period” or, under the grace limb at (2A)(b), “obtained relief under this Chapter for its most recent prior accounting period of 12 months’ duration, having met the R&D intensity condition in that period”; and Condition E at subsection (5A) is “that the company makes a loss in the trade in the period”. Section 1045ZA(2) sets the intensity condition at relevant R&D expenditure of “at least 30% of its total relevant expenditure for the period”. Section 1045 carries the same Conditions A and B for pre-trading expenditure. Conditions B and E and section 1045ZA were inserted with effect for accounting periods beginning on or after 1 April 2024.
  • Section 1138 CTA 2010, section 1006 ITA 2007 and regulation 2 of SI 2004/712 — the definition chain.
  • Guidelines on the meaning of research and development for tax purposes, updated 7 March 2023. The 2004 text as revised in 2010 applied here; the paragraph numbers are common to both.
  • CIRD manual change log — checked 18 September 2026; latest entry 25 August 2026, none attributed to this decision. This decision cites no CIRD paragraph, so nothing here rests on the manual. The two pages amended on 27 February 2025 are CIRD81650 and CIRD84250, and both have a row on our CIRD reference index.
  • Our full analysis of the decision — on the baseline the claim never had.
  • Tanglewood Care Services, quoted at paragraph 70; Beer Express, agreed with at 69; Flame Tree Publishing at [66], HMRC counsel’s formulation, endorsed by that tribunal at [68]; this decision sets it out at 74, pinning it to [68], and qualifies it at 79; Hadee Engineering at [217], applied at 85.

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.