R&D tax relief •10 min read

Quinn (London) Ltd v HMRC

MJ

Matthew Jones ACA CTA

Last reviewed September 2026 · Editorial standards

Tribunal
First-tier Tribunal (Tax Chamber)
Decided
27 October 2021
Judge
Judge Harriet Morgan

Quinn is where the subsidised-expenditure line starts. HMRC argued that a construction company’s R&D was paid for by its clients, because the price they paid under commercial contracts was enough to cover the cost of the work. The tribunal rejected that reading of section 1138(1)(c) CTA 2009 and allowed the appeal in principle. Collins Construction followed it, Stage One followed Collins, the Upper Tribunal in Perenco reached the same conclusion on almost identical statutory words, and LR R&D LLP extended it to borrowed money. HMRC’s published guidance did not move for more than three years.

What was at issue

Quinn (London) Ltd is a construction company operating through four divisions, working for local authorities, property developers, hospital trusts and housing associations (paragraph 7). Its heritage commercial manager gave evidence on three sample projects — Gunnersbury Park, Pitzhanger Manor and Radio House — all carried out under the JCT Standard Building Contract Without Quantities (2011), with nothing unusual in how the contracts operated (paragraph 8).

The claims were for the accounting periods ended 31 May 2017 and 31 May 2018, under the old SME scheme in Chapter 2 of Part 13 CTA 2009. Quinn put the sum at stake at “at least £800,000 and may be as much as £1.2 million”, and the evidence was that eight to ten similar cases were being dealt with by a single firm (paragraph 69).

Little was in dispute. HMRC accepted that Quinn was an SME, that it had carried out R&D in the course of its trade, and that it had spent the money and was entitled to deduct it (paragraph 3). The single issue was whether the expenditure was subsidised under section 1138(1)(c), which would take it outside Condition E in section 1052(6) (paragraphs 4 and 43).

How the dispute got to a hearing

HMRC closed its enquiries and amended the returns for both periods on 21 April 2020, under paragraph 32(1A) of Schedule 18 FA 1998 (paragraph 1). The appeal, reference TC/2020/01846, was heard on 10 and 11 June 2020 on the tribunal video platform because of the coronavirus restrictions, and the decision was released on 27 October 2021 — some sixteen months later.

Judge Harriet Morgan sat alone, with leading counsel on both sides. There was no factual dispute: the company’s witness evidence was accepted and he was asked only a few clarificatory questions (paragraph 6).

The decision does two things. It decides the subsidy point, and it allocates the appeal to the Complex category. The footing for that was that the appeal raised “a complex or important principle or issue” on which there was no binding authority, and which “may be expected to affect many taxpayers” (paragraph 73).

What each side argued

HMRC’s case was short and, at the time, effective. It was enough for section 1138(1)(c) that the R&D “was carried out by Quinn in the course of it providing construction and refurbishment services to its Clients” (paragraph 5). Those were services “for which it was entitled to payment from the Clients of a sufficient amount to cover the claimed expenditure and which was in due course paid” (paragraph 5). The clients therefore indirectly “met” the expenditure (paragraph 5). On construction, HMRC said the words bear their ordinary meaning in context. Part 13 “is a detailed, prescriptive and meticulously drafted code which leaves little room for a purposive interpretation”, citing Gripple at [12]. And the heading “Subsidised expenditure” is “no more than a guide to what follows”, which does not control the enacting words (paragraph 39).

Quinn’s case was that a client paying for a finished building has not made a payment to meet the cost of research. The contract is “an entirely commercial arrangement” under which the client “simply paid a price for a product, the finished building works” (paragraph 5). It relied on the same language in the capital allowances code and on Harman J’s reasoning in Stokes v Costain, where “bounty” was used to describe what the equivalent provision was aimed at (paragraphs 31 to 35).

The provision the case turns on

Section 1138(1) CTA 2009, in the version in force for these periods, reads:

“For the purposes of this Part a company’s expenditure is treated as subsidised— (a) if a notified State aid is, or has been, obtained in respect of— (i) the whole or part of the expenditure, or (ii) any other expenditure (whenever incurred) attributable to the same research and development project, (b) to the extent that a grant or subsidy (other than a notified State aid) is obtained in respect of the expenditure, (c) to the extent that it is otherwise met directly or indirectly by a person other than the company.”

Condition E in section 1052(6) — that the expenditure is not subsidised — was the gate the claim had to pass.

What the tribunal decided

The judge began with what “met” means. Broadly, it is “that the other person provides the money that is needed to pay, fulfil, satisfy or discharge the cost of the relevant R&D with the effect that the SME is not subject to or is relieved of that cost” (paragraph 45(3)(a)).

Read in context, paragraph (c) is not free-standing. It follows (a) and (b). So “the further implication of the ‘otherwise’ wording is that s 1138(1)(c) is intended to operate, in effect, as a form of sweep up provision” (paragraph 47(2)). Its function is “to capture cases (a) where expenditure is not ‘met’ by ‘notified State aid’ or ‘a grant or subsidy….’ … but (b) is ‘met’ in a similar sense” (paragraph 47(2)). And a subsidy or grant “generally involves the provision of funds to a recipient who either provides nothing in return” (paragraph 47(3)(a)). The alternative is a recipient who “provides something which, viewed from the perspective of parties acting on an arm’s length basis, does not represent a commercial return commensurate with the value of the funds provided” (paragraph 47(3)(a)).

Applied to the contracts, the conclusion was that section 1138(1)(c) “is not intended to apply in circumstances such as those in this case, in the absence of a clear link between the price paid by the client/customer and the expenditure on R&D” (paragraph 47). The bargain was for works at a price which might or might not cover Quinn’s costs. Under the contracts, “Clients do not agree to pay or reimburse Quinn for particular costs, such as the claimed expenditure” (paragraph 47(4)(c)). And “Quinn does not agree to carry out the relevant R&D on being paid or reimbursed by the Client for doing so” (paragraph 47(4)(c)).

The judge then made the consequence explicit. HMRC’s reading “would be wholly out of kilter with the overall SME scheme” (paragraph 47(5)). Relief would be denied to a company doing what the legislation envisages, namely using its R&D in its trade. On that reading “the circumstances in which an SME could claim enhanced R&D relief would seem to be confined to those where it has no prospect of exploiting the R&D for commercial gain” (paragraph 47(5)).

Gripple did not help HMRC. Henderson J had rejected a generous construction. But “he did not thereby suggest that a narrow or restricted interpretation should be adopted (as is the effect of HMRC’s approach)” (paragraph 49). He was “plainly not advocating an approach of assessing whether the conditions are satisfied by interpreting them without any regard to context” (paragraph 49). The appeal was allowed in principle (paragraph 74).

Where it sits against the other decisions

Two years later the Upper Tribunal reached the same place by a different route. HMRC v Perenco UK Ltd [2023] UKUT 169 (TCC) is a petroleum revenue tax appeal about paragraph 8 of Schedule 3 to the Oil Taxation Act 1975, so it is not authority on section 1138. But the words are materially identical and the reasoning is squarely on the point. At paragraph 74 the Upper Tribunal reasoned: “if A pays a sum of money to B in order to receive goods or services in return, on the basis of an arm’s length commercial contract”. Then “A’s payment is properly to be regarded as consideration for what A receives and not as a way of meeting B’s expenditure” (paragraph 74). That holds “even if A’s payment is calculated to reflect B’s expenditure attributable to those goods or services (with or without the addition of a profit margin)” (paragraph 74). And at paragraph 75: “Our approach to this point is very similar to that of the FTT in Quinn (London) Limited v HMRC [2021] UKFTT 437 (TC).”

That is as close to higher authority as this question has. Collins Construction declined to depart from Quinn, finding “striking similarities in both cases”, and Stage One Creative Services followed the line into a discovery dispute. LR R&D LLP v HMRC [2025] UKFTT 245 (TC) took it further at paragraph 218. It was “applying the decisions in Quinn (London) Ltd v HMRC [2022] SFTD 152, HMRC v Perenco UK Ltd [2023] STC 1421 and Collins Construction Ltd v HMRC [2024] UKFTT 951 (TC)” (paragraph 218). On those authorities, “we agree … that a loan is not within the scope of what is intended by condition D” (paragraph 218). Borrowing to fund R&D does not subsidise it.

One note on citation. The decision’s own cover page places the relief in “Chapter 2 of Part 12 of the Corporation Tax Act 2009”; it is in Part 13. Later decisions cite Quinn both by its neutral citation and as [2022] SFTD 152.

What HMRC did afterwards

Nothing, for over three years. Quinn was released on 27 October 2021 and HMRC did not change its published guidance in response. Its position is on the record in the Research and Development Communication Forum minutes of 15 December 2023, more than two years later. “There are no published FTT decisions in respect of subcontracting (Quinn was about subsidised expenditure) and, in respect of the existing schemes, HMRC’s view has not changed.”

The guidance moved only after Collins Construction and Stage One. CIRD81650 and CIRD84250 were both amended on 27 February 2025, each carrying the note that the guidance reflects HMRC’s view following recent First-tier Tribunal decisions — without naming any of them. In the minutes of 6 May 2025 HMRC records that it accepts those two decisions and has updated its position accordingly, and that it has established no correction mechanism for companies whose position is already final.

What it changes for a claim being prepared now

  • For old-scheme periods still open, this is the first authority to cite, not the last. Quinn is the origin; Collins applied it to a fuller set of facts; Perenco supplies Upper Tribunal reasoning to the same effect on almost identical words.
  • The test is the link, not the cash flow. Ask what the contract obliges the customer to pay for. A price for a deliverable is consideration. A payment calculated to reimburse identified R&D costs, or expressly to fund the work, is a different animal.
  • Under the current schemes, the question has gone. For accounting periods beginning on or after 1 April 2024, subsidised expenditure no longer reduces relief; relief is worked out on the full qualifying expenditure. The live question for a grant-funded or customer-funded project is now whether the R&D was contracted out — see contracted-out R&D and grants and R&D tax relief.
  • Keep the contract file. Quinn won because the JCT contracts said what they said. Sample contracts, priced schedules and the reasoning behind the price are what decide this argument.

Has it been appealed?

No onward appeal has been reported, and no Upper Tribunal decision in the case appears on the published record. Applications for permission to appeal are not published, so the absence of a reported appeal is not proof that none was sought. The appeal was allowed in principle, which left the figures to the parties; no further published decision in the case appears on the record.

The decision is First-tier Tribunal, so it binds only the parties and sets no precedent. Its weight comes from what has been built on it: three later tribunals have applied it, and the Upper Tribunal in a different tax has said its own approach is very similar. It sits with the rest of the R&D tax case-law register, one page per decision.

Sources

Every CIRD paragraph cited above is indexed on our CIRD reference index, with HMRC’s own title for each, a line on what it says and the date HMRC last revised it.

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.