R&D tax relief •10 min read

H & H Contract Scaffolding Ltd v HMRC

MJ

Matthew Jones ACA CTA

Last reviewed September 2026 · Editorial standards

Tribunal
First-tier Tribunal (Tax Chamber)
Decided
16 February 2024
Judge
Judge Watkinson

The company won and the penalty was cancelled. HMRC had charged £6,632.01 for a careless inaccuracy after deciding a scaffolding contractor’s R&D claim did not qualify, on reasoning that came to this: the company could not show the claim qualified, therefore it had been careless. The tribunal rejected that as a matter of principle, and found in any event that relying on a specialist adviser met the standard of reasonable care. It is the only decision we have found on a Schedule 24 penalty attached to an R&D claim.

What was at issue

H & H Contract Scaffolding Ltd filed an amended CT600 on 11 February 2021 for the accounting period 1 July 2018 to 30 June 2019, claiming an R&D tax credit of £40,194 and enhanced expenditure of £490,774 (paragraph 16). HMRC checked the claim, refused it, and charged a penalty of £6,632.01 for a careless inaccuracy under Schedule 24 to the Finance Act 2007 (paragraph 1).

Only the penalty was before the tribunal. HMRC’s closure notice of 23 November 2022 concluded that the activities relied on in the R&D compliance report did not meet the definition of R&D for tax purposes, and the tribunal recorded that it was not aware of any appeal against it (paragraph 23). The relief was gone either way. The question was whether the inaccuracy that produced it was careless, and, if the penalty stood, whether HMRC’s refusal to suspend it was flawed.

The tribunal was direct about how little the science mattered: “Bearing in mind the issues canvassed below I have not found it necessary to set out the details of the R&D tax relief scheme” (paragraph 25). A penalty case is about behaviour, not about technology.

How the dispute got to a hearing

The amended return went in on 11 February 2021. HMRC opened a check into it on 6 May 2021 under paragraph 24 of Schedule 18 to the Finance Act 1998, asking for information about the claim. On 22 June 2021 the company’s agent, Legal Rooms, supplied an R&D compliance report dated 25 May 2021, and correspondence about its contents followed (paragraphs 17 and 18).

On 28 April 2022 the director answered HMRC’s questions about how the claim came to be made. He had investigated R&D after speaking to a fellow member of the scaffolding trade body. He supplied documentation, plans and photographs to Legal Rooms, and was told the company would qualify (paragraph 19). HMRC sent a penalty explanation letter on 21 July 2022, which was not in the bundle put before the tribunal (paragraph 20). On 19 August 2022 the company’s then representative appealed the penalty and asked for suspension on stated conditions. The assessment was notified on 21 September 2022, the closure notice followed on 23 November 2022, and HMRC refused suspension on 14 February 2023 (paragraphs 21 to 24).

The notice of appeal to the tribunal was dated 12 May 2023 and HMRC’s statement of reasons 16 October 2023. Judge Watkinson determined the appeal on the papers under Rule 26 on 13 February 2024, having read the notice of appeal, the statement of reasons and a bundle of 261 pages. It was released on 16 February 2024.

What each side argued

The company’s grounds were signed by its director under a declaration of truth and set out an ordinary account of taking advice (paragraph 9). He had used a company he understood to be reputable. He had met its representatives several times at events run by the trade body for scaffolders, which he took as assurance of their competence, and other members had reassured him. He had given the adviser full and accurate facts rather than leaving them to it, and he had checked the advice as far as someone of his knowledge could. As a layman he could not review the Guidelines himself, and HMRC taking a different view did not make accepting the advice careless. On suspension, he argued that an undertaking not to claim R&D relief for 24 months was a measurable condition, and that not claiming was itself a change of behaviour.

HMRC’s case did not survive first contact with the judge, who described the statement of reasons as “a confused document” (paragraph 10). It asserted that the burden was on HMRC to show the penalty was correctly calculated and then shifted to the company to show a reasonable excuse — which is the test for some other penalty regimes, not for inaccuracy penalties. Its substantive position was quoted in full: “The Appellant submits that they cannot be expected to review the BEIS guidelines, however, the Respondents contend that it is reasonable for them to show that they qualified for the claim made. The absence of this evidence amounts to careless behaviour by the Appellant” (paragraph 11).

Three things HMRC did not do proved decisive. It did not rely on paragraph 18 of Schedule 24 to shift the burden, and did not assert that the adviser had been careless. It did not identify who had been acting on the company’s behalf, asserting instead that the company had submitted the return itself (paragraph 15). Nor did it take issue with most of the factual grounds the director had advanced (paragraph 14).

The provision the case turns on

Paragraph 1 of Schedule 24 makes a penalty payable where a document listed in its table contains an inaccuracy. A company tax return is one of the listed documents. The inaccuracy must amount to or lead to an understatement of a liability to tax, or a false or inflated claim to repayment, and it must have been “careless (within the meaning of paragraph 3) or deliberate on P’s part”.

Paragraph 3(1) supplies the graded test. An inaccuracy is “‘careless’ if the inaccuracy is due to failure by P to take reasonable care”. It is “‘deliberate but not concealed’ if the inaccuracy is deliberate on P’s part but P does not make arrangements to conceal it”. It is “‘deliberate and concealed’ if the inaccuracy is deliberate on P’s part and P makes arrangements to conceal it …”. The text is the latest revised version as at the review date above.

Two further points framed the appeal. Paragraph 18(1) makes a company liable where a document containing a careless inaccuracy is given to HMRC on its behalf. But paragraph 18(3) provides that it “is not liable to a penalty under paragraph 1 or 2 in respect of anything done or omitted by P’s agent where P satisfies HMRC that P took reasonable care to avoid inaccuracy …”. The burden of proving carelessness sits on HMRC except where paragraph 18 shifts it (paragraph 7). The standard is the one in Collis v HMRC, quoted at paragraph 8: “that of a prudent and reasonable taxpayer in the position of the taxpayer in question”.

What the tribunal decided

The appeal was allowed (paragraph 29). The reasoning has two independent legs, and the first is the one worth citing.

HMRC’s case, as the judge read it, was that a taxpayer who cannot show it qualified for the relief must have been careless. That reverses the inquiry: “It is inherent in the very existence of the inaccuracy relied on by the Respondents that the Appellant will not be able to show that it qualified for the R&D claim made. The existence of the inaccuracy does not answer whether the inaccuracy itself is careless” (paragraph 12). Every failed claim looks like this by definition, so the reasoning proves nothing about behaviour.

From that follows a positive obligation on HMRC: “where the Respondents seek to levy an inaccuracy penalty it is incumbent on them to set out, at least at a basic level” (paragraph 13). What must be set out is “why on the facts of the case as they assert them to be the taxpayer, or any relevant third party, has been careless” (paragraph 13). No such explanation appeared anywhere in the statement of reasons.

The tribunal also refused to let the burden be reversed by silence. If HMRC wanted paragraph 18 to apply so that the company had to prove reasonable care, “they both could, and should, have made that clear, but they did not. Had the Respondents done so the Appellant may have sought to respond” (paragraph 26). Because HMRC had not taken issue with the facts sworn in the grounds of appeal, the tribunal would not conclude those facts were inaccurate (paragraph 27).

The second leg was an alternative finding, and it gives the decision its practical value. Even if the burden had been on the company, and even if the adviser had been acting on its behalf and had been careless, the tribunal found on the balance of probabilities that the company “took reasonable care to avoid an inaccuracy” (paragraph 28). The facts sworn by the director were established, and HMRC had produced nothing to controvert them. The company “did what a prudent and reasonable taxpayer in the position of the taxpayer in question would do” (paragraph 28).

The appeal was therefore allowed “on the basis that the inaccuracy was not a careless one”, and the suspension question did not have to be decided (paragraph 29).

What it changes for a claim being prepared now

  • A penalty is a separate argument from the claim, and it is often the better one. Losing the relief does not settle the penalty. Where HMRC’s explanation says only that the claim failed, ask it to state, on its own asserted facts, what the company or its agent did carelessly.
  • Keep a record of how the adviser was chosen and what they were given. What carried the day here was ordinary, documented diligence: where the adviser was met, who vouched for them, what facts and documents they received, what they said about eligibility. Write it down when it happens. Choosing an R&D tax adviser sets out what to ask.
  • Answer HMRC’s behavioural questions carefully. The director’s answers of 28 April 2022 about how the claim came to be made became the evidence that saved the penalty. Those questions are standard in an R&D check, and they are about culpability, not technology.
  • Reasonable care is not a guarantee of the claim. The relief still went. The decision protects a company from a penalty on top, not from repaying a credit it was not entitled to. Can HMRC make me pay back an R&D tax credit? covers the recovery side.

The underlying claim was made under the old SME scheme for a period ended 30 June 2019, but nothing in the decision depends on which relief was claimed. Schedule 24 applies in exactly the same terms to a merged-scheme or Enhanced R&D Intensive Support claim for an accounting period beginning on or after 1 April 2024. The framework on what penalties HMRC can charge if an R&D claim is wrong sets out the percentages and the reductions for disclosure.

Where it sits against the other decisions

It is the only decision in the register about a penalty rather than entitlement, and the only one in which HMRC’s own case papers were the reason it lost.

It pairs with Beer Express, where a company also relied on a specialist R&D adviser that prepared the reports, took its fee from the credit and, on the director’s evidence, could not be contacted when HMRC asked for the money back. The two divide the consequences: Beer Express shows the relief lost and the repayment falling on the company; H & H shows that the same facts need not also produce a penalty.

It is also the counterweight to a common misreading of the competent-professional decisions. Flame Tree Publishing and Beer Express both show claims failing for want of evidence; neither says that failing to prove a claim is itself careless. Paragraph 12 of this decision says the opposite.

Has it been appealed?

No onward appeal has been reported, and no Upper Tribunal decision naming H & H Contract Scaffolding appears on the published record. HMRC was the losing party. Applications for permission to appeal are not consistently published, so the absence of a reported appeal is not proof that none was sought.

HMRC has not changed its published guidance as a result. Nothing in the CIRD manual’s dated change log is attributed to the decision, and the Compliance Handbook pages the director cited — CH75160 on reliance on an agent and CH81140 on the standard of care — are guidance that predates the decision, not anything written afterwards.

The decision is First-tier Tribunal, so it binds only the parties and sets no precedent. It was also decided on the papers, without a hearing, which limits how much can be read into the findings of fact. Its weight is in paragraph 12, which answers the reasoning that still appears in penalty explanations. The other decisions sit in the register of R&D case law.

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.