R&D tax relief •4 min read

Hadee Engineering Co Ltd v HMRC

MJ

Matthew Jones ACA CTA

Last reviewed September 2026 · Editorial standards

Tribunal
First-tier Tribunal (Tax Chamber)
Decided
10 October 2020
Judge
Judge Jennifer Dean and Mrs Ann Christian

An engineering company claimed eight items of R&D across two accounting periods. One survived. The tribunal held that a project needs a plan and a methodology you can point to, and that work commissioned and paid for by a customer, with no risk to the company doing it, was both contracted out and subsidised. Parts of that second holding no longer apply — see the caution below before you rely on it.

What was at issue

Hadee Engineering claimed enhanced R&D deductions of £182,377 and £121,317 for the years ended 30 April 2009 and 30 April 2010. HMRC’s closure notices removed them and assessed additional corporation tax of £51,065.56 and £33,968.76.

The claim was built from a consultant’s report describing eight items — marine gear welding, a double deck loader, a hollow ingot manipulator, a trombone walkway gantry, a 5,000 tonne manipulator track, a tilting wash down system, an animal centrifuge, and “general R&D”, which was conceded. Much of the work had been commissioned by customers, Sheffield Forgemasters among them, and paid for.

Three questions ran through it. Was any of this R&D at all? Was the expenditure evidenced and apportioned? And did the claim clear the old SME scheme’s conditions on who owns the R&D — the ones about work contracted out to the company and expenditure subsidised by someone else?

What the tribunal decided

The appeal was allowed in part (paragraph 313), and dismissed as to the rest (paragraph 314). Only the marine gears project met the requirements, and only in principle: how much qualified was left for the parties to agree, with a further hearing if they could not.

Everything else failed, on a mixture of law and evidence. The managing director’s evidence on the activities claimed was found “vague and at times contradictory” (paragraph 234), and the consultant’s report was treated with caution because its author was not called to be questioned on it (paragraph 235).

The findings that did the damage

A project needs a plan. The tribunal held that formulating a plan is required, and that although no particular form is prescribed, it would “expect some record” of one (paragraph 217). A claimant has to show a clear methodology that identifies the uncertainty it set out to resolve (paragraphs 220 and 221). Following the High Court in Gripple, it said a narrow approach is required.

Being commissioned and paid can be fatal — under the old rules. Where the work was “a direct commission subcontracted to the Appellant with no risk and in respect of which the Appellant was reimbursed” (paragraph 287), the claim failed the conditions on contracted-out and subsidised expenditure at once. The evidential gap made it worse: no terms of engagement were produced that would have shown what the contract actually covered, and payments could have been for the product, for the R&D, or for both (paragraph 226).

Read this before you rely on it

The second holding is a decision about the old SME scheme, on periods that ended in 2009 and 2010, and it has been overtaken twice.

First by the tribunal itself: Collins Construction and Stage One Creative Services both rejected the reading that ordinary commercial payments subsidise R&D, and HMRC has since said it accepts those decisions and rewrote its guidance to match. Second by Parliament: the merged scheme replaced the old subsidised and subcontracted tests with a single statutory question about who intended or contemplated the R&D when the contract was made. Our guide to contracted-out R&D sets out the current test.

What has not dated is the first holding. Plans, methodology and records are still where claims are won and lost, and Hadee remains the decision HMRC cites for it.

What it changes for a claim being prepared now

  • Write the plan before the work, not the claim after it. A project in the statutory sense has an objective and a route to it. If nothing was written at the time, the tribunal has said what it expects to see and you will not have it.
  • Name the uncertainty and the method used to attack it. A description of what was built is not a description of what was uncertain.
  • Put the contracts in the file. In Hadee the terms of engagement were never produced, and the tribunal had no way to tell what the customer was paying for. That question is still live under the merged scheme, in a different form.
  • Call your own expert. A consultant’s report whose author does not attend is worth much less than the person who did the work, answering questions.

Has it been appealed?

No onward appeal against the R&D decision has been reported, and no Upper Tribunal decision on it appears on the published record.

One warning, because it is widely got wrong. A 2022 Upper Tribunal decision is indexed under the Hadee name — [2022] UKUT 84 (TCC) — and it is not an appeal in this case. It concerns different appellants, a different First-tier decision released in November 2020, and capital gains, penalties and a loss carry-back. It says nothing about R&D. A second citation in circulation, [2022] UKUT 258 (TCC), is a different case again and has nothing to do with Hadee. Hadee’s R&D holdings are First-tier Tribunal only: persuasive, and binding on nobody.

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.