R&D tax relief •11 min read

Tanglewood Care Services Ltd v HMRC

MJ

Matthew Jones ACA CTA

Last reviewed September 2026 · Editorial standards

Tribunal
First-tier Tribunal (Tax Chamber)
Decided
6 August 2026
Judge
Judge Stapenhurst and Mr Julian Sims

The claim was dismissed. A care operator had claimed £880,286 of enhanced R&D expenditure for infection-control work across seven residential care homes in the year to 31 January 2021. HMRC removed it, and the appeal failed (paragraph 121). What makes the decision useful is that the tribunal accepted most of the claimant’s legal arguments and refused the claim anyway, on the evidence. It was decided under the old SME scheme and the 2010 Guidelines. HMRC has not changed its guidance as a result, and the permission window was open at the review date above.

We cover the decision in full in a separate article, including how the claim came to be made in a sector HMRC had already written to.

What was at issue

Whether pandemic infection-control work in care homes was research and development at all. The agreed principal issue was “whether the activities relied upon by the Appellant constituted research and development for the purposes of Part 13 CTA 2009 and the BEIS Guidelines” (paragraph 2).

The claim sat in Chapter 2 of Part 13, the old SME scheme. Entitlement under section 1044 required Condition D, qualifying Chapter 2 expenditure — defined by section 1051 as expenditure on in-house direct R&D under section 1052 or contracted-out R&D under section 1053. Only Condition D was in dispute (paragraph 15), HMRC’s case being that neither head was attributable to relevant R&D (paragraph 17).

One project was claimed, titled “Managing outbreak & effects of a Global Pandemic in a residential care home (Covid-19)” (paragraph 6), across seven homes (paragraph 75). Quantum was not reached (paragraph 3).

How the dispute got to a hearing

The company was incorporated on 2 June 2015 and operates residential nursing care facilities (paragraph 4). It filed its return for the period ended 31 January 2021 on 28 February 2022 with no R&D claim, then amended on 9 September 2022 to claim the £880,286 (paragraphs 5, 6). A closure notice under paragraph 32(1A) of Schedule 18 to the Finance Act 1998 removed it (paragraph 1).

The decision gives neither the enquiry-opening date nor the closure-notice date, which is worth stating rather than inferring. The appeal reference is TC/2024/03731, so it reached the tribunal in 2024. It was heard by remote video on 29 July 2026 before Tribunal Judge Stapenhurst and Mr Julian Sims, and released eight days later. Perry Lewis of Aspen Waite Accountants appeared for the company; Liam Ellis of HMRC’s Solicitor’s Office for HMRC. Three witnesses gave evidence: the founder and director, the director of estates and development, and the holder of “a senior administrative and support role” responsible for procurement and reporting (paragraphs 45 to 53).

What each side argued

The company’s response to the pandemic was extensive. It introduced and repeatedly revised visitor restrictions, isolation arrangements, cohorting, PPE requirements, testing regimes and reporting systems, along with zoning, movement controls and changes to the physical operation of its homes (paragraphs 47, 49). The director of estates and development described physical adaptations, additional handwashing facilities and dedicated visitation suites (paragraph 50). Information was collected daily from the homes and fed into regular management meetings (paragraphs 47, 53).

The company’s case was that HMRC had analysed the project wrongly, “by considering individual measures in isolation”. Read as a whole under paragraph 19 of the Guidelines, the advance lay “not in any individual intervention but in the development, integration, evaluation and optimisation of a system comprising multiple interacting measures” (paragraph 57). It relied on system uncertainty under paragraphs 29 and 30 (paragraph 58) and on paragraph 6 covering capability as well as knowledge, so that it “was therefore not required to demonstrate an advance in scientific understanding of Covid-19 itself” (paragraph 59). The relevant field “was the application of infection-control techniques within residential care environments”, so the competent professionals were experienced care-home operators and nursing staff, not virologists (paragraph 63).

HMRC’s case was that the burden sat on the company to identify the field, establish its baseline of knowledge, demonstrate uncertainty and show an advance beyond it (paragraph 66). The evidence showed “an operational response to rapidly changing circumstances rather than a planned programme directed at resolving scientific or technological uncertainty”, and the claim report, prepared after the period, identified no baseline, uncertainties, methodology or success criteria (paragraphs 68, 69). On the field, “the management and operation of a care home is not itself a field of science or technology” (paragraph 70), and no witness had relevant expertise (paragraph 71). The measures “were either already known or readily deducible responses to the pandemic”, and going beyond existing guidance “did not, of itself, amount to an advance in science or technology” (paragraph 72). The uncertainties that did concern transmission “were being investigated by scientists and public-health authorities” (paragraph 73).

The provision the case turns on

Section 1044(5) CTA 2009, in the version in force, provided:

“Condition D is that the company has qualifying Chapter 2 expenditure …”

Section 1052(3) added, for in-house direct R&D:

“Condition B is that the expenditure is attributable to relevant research and development undertaken by the company itself.”

“Research and development” is then defined by a chain: section 1138 CTA 2010, section 1006 ITA 2007, and the Research and Development (Prescribed Activities) Regulations 2004 (SI 2004/712), which point to the Guidelines (paragraphs 18 to 20). The version applying here is the 2010 revision (paragraph 21). Paragraph 6 defines an advance as one “in overall knowledge or capability in a field of science or technology (not a company’s own state of knowledge or capability alone)”. Paragraph 15 provides that “Work in the arts, humanities and social sciences, including economics, is not science for the purpose of these Guidelines”. In the current Guidelines that wording sits at paragraph 15A.

What the tribunal decided

The company won the first point: “Although no formal project plan existed and many decisions were taken incrementally as circumstances evolved, we do not consider paragraph 19 requires a formally documented plan.” The evidence showed “a coordinated programme of activity involving information gathering, review and implementation directed towards a defined objective. Unlike the position in Hadee Engineering, we are therefore satisfied that the activities constituted a project” (paragraph 87).

It won most of the points of interpretation. One went the other way. Paragraph 9 cannot be read in isolation from paragraph 6, so improved functionality alone is not an advance, the provisions being a prescriptive code applied condition by condition (Gripple Ltd v HMRC [2010] EWHC 1609 (Ch) at [12], paragraph 93). On the rest the company prevailed. “We do not, however, accept that paragraph 6 requires a claimant in every case to demonstrate an advance in underlying scientific or technological knowledge” (paragraph 94). Advances may arise “through the resolution of uncertainty affecting capability as well as knowledge”, and a project is not excluded “merely because its individual components are already known” (paragraph 94). Nor does a claim fail “simply because the individual measures relied upon by the Appellant were already known” (paragraph 98). The Guidelines are also “broad enough to encompass system uncertainty arising from the interaction of multiple measures within a system” (paragraph 104).

It failed on the evidence. “The difficulty for the Appellant is that the evidence does not establish that the project sought to achieve an advance in overall knowledge or capability in a field of science or technology.” The objective was “to determine how best to deploy, balance and manage infection-control measures within the Appellant’s own care homes”, not an advance “beyond the Appellant’s own operations” (paragraph 99).

On uncertainty: “uncertainty within the wider scientific and public-health community does not of itself establish that the Appellant’s activities were directed towards resolving scientific or technological uncertainty” (paragraph 105). The matters relied on — staffing, visitor policies, admissions, PPE procurement, compliance — were “real and difficult problems, but they were predominantly operational and managerial in character” (paragraph 106), and paragraph 15 puts the social sciences outside the definition (paragraph 107).

Two evidential findings closed it. The three witnesses were “honest, conscientious and experienced individuals with significant expertise in the care sector” (paragraph 111). But “none of those witnesses claimed expertise in virology, epidemiology, infectious disease transmission, infection science or any other scientific or technological discipline capable of assisting the Tribunal as to the relevant state of knowledge or capability in the field” (paragraph 112). That mattered “not because we consider the relevant field must necessarily have been virology or epidemiology”. It mattered because it left the tribunal without evidence on whether the uncertainties were readily deducible (paragraph 113), a point reinforced by AHK Recruitment Ltd v HMRC [2020] UKFTT 232 (TC) (paragraph 114). And the work, extensive as it was, did not involve “a systematic process of investigation or experimentation directed towards resolving scientific or technological uncertainty” (paragraph 115).

The tribunal was explicit about what it was not deciding: “the statutory test is not whether the Appellant acted effectively, innovatively or successfully in managing its care homes during the pandemic” (paragraph 117). The appeal was dismissed (paragraph 121).

What HMRC did afterwards

Nothing, on the published record as at the review date above. No entry in the CIRD manual’s dated change log is attributed to this decision; the only tribunal-attributed change in the 2023 to 2026 log is the 27 February 2025 rewrite of CIRD81650 and CIRD84250 following Collins Construction and Stage One Creative Services. The most recent Research and Development Communication Forum minutes, of 10 March 2026, predate the decision.

That is a finding rather than a gap in the research. The decision applied the existing Guidelines, and the interpretation points HMRC lost were submissions made in the appeal rather than positions stated in the manual.

What it changes for a claim being prepared now

  • Measure the advance against the field, not yourself. Being ahead of where you were, or ahead of official guidance, is not an advance in science or technology. The tribunal found the company had moved before later Government guidance did (paragraph 80), and it made no difference.
  • Separate operational difficulty from technological uncertainty, in writing, while the work runs. In a hard year the two feel identical; three years later, at an enquiry, they read differently. The sentence that would have helped runs: the baseline was X, publicly available in the field; the question no competent professional in that field could answer was Y; we tested Z to resolve it. Anything reading we had to decide how to staff the home belongs in the operational file.
  • Bring someone who can speak for the field. The point was not that the field had to be virology, but that nobody could tell the tribunal what a competent professional in the relevant field already knew.
  • Record the method. Effort and expenditure are not a systematic investigation. Hypothesis, test, result, iteration is.

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 and ERIS. A claim for a current period would meet the same evidential difficulty.

Where it sits against the other decisions

On the competent professional it adopts Flame Tree Publishing (paragraphs 44, 112) and Judge Bedenham’s observations in AHK Recruitment (paragraph 114). On the project question it goes the other way from Hadee Engineering. Where Hadee’s claimed items mostly failed for want of a recorded plan and methodology, here “Unlike the position in Hadee Engineering” the activities were a project (paragraph 87). The narrow-construction point comes from Gripple (paragraph 93).

The closest companion is M&C Educational Training Services Ltd v HMRC [2025] UKFTT 1506 (TC). A metallurgy training provider failed there because “The uncertainties and advances to which the appellant and these persons refer are advances in a social science, education, and not in a field of science or technology” (paragraph 42(3)). Both turn on the field the advance is claimed in, not the effort put in.

It has already been applied. The First-tier Tribunal in Environmental Services quoted this decision at length and adopted its reading of Guidelines paragraphs 6 and 9 five weeks after release (Environmental Services at paragraphs 70 and 88).

Has it been appealed?

Not settled, and too early to say it is. No onward appeal has been reported and no Upper Tribunal decision in the case appears on the published record as at the review date above. The decision gives the parties 56 days from the date it was sent to apply for permission (paragraph 122). It was released on 6 August 2026, and the sent date is not on the face of it, so the window closes no earlier than 1 October 2026 — after this review. Applications for permission are not published anyway. This entry is diarised for re-check after that date.

This is a First-tier Tribunal decision on its own facts: it binds only the parties, sets no precedent and puts no sector outside the relief. On most of the points of principle the tribunal went the claimant’s way. The same qualification applies to the rest of the 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.