R&D tax relief •10 min read

Tills Plus Ltd v HMRC

MJ

Matthew Jones ACA CTA

Last reviewed September 2026 · Editorial standards

Tribunal
First-tier Tribunal (Tax Chamber)
Decided
11 July 2024
Judge
Judge Robin Vos and Mrs Sonia Gable

The company won the point it had come to argue and lost the appeal anyway. HMRC said no sub-contractor payment had been made because the subcontractor’s invoices were settled by a family lender of the director rather than out of the company’s own bank account. The tribunal disagreed: what the legislation requires is that the obligation is discharged at the company’s cost. But HMRC had kept the R&D question open during the enquiry and was allowed to defend the closure notice on it. On that ground the claims failed: the account of the advance written in December 2021 was not the work the May 2017 contract had bought.

What was at issue

Tills Plus Ltd develops technology for the hospitality industry, and in particular electronic point of sale systems (paragraph 66). It was established in 2015 by its sole director, who from 2018 was also its sole shareholder (paragraph 65).

For the period ended 30 November 2018 the additional R&D expenditure claimed was just over £1.5m and a tax credit of just over £390,000 was paid in April and May 2020. For the period ended 30 November 2019 the figures were just over £1m and a little over £275,000, which HMRC did not pay (paragraphs 3 and 4).

The claims were made under the old SME scheme on the contracted-out route: expenditure incurred in making the qualifying element of a sub-contractor payment, under section 1053(1)(a) CTA 2009. Funding for the work came from a family connection of the director, and the development was placed with an overseas software company, iWond, under a Software Development Agreement dated 10 May 2017 (paragraphs 67 to 69). The agreed service was to “[c]arry out research and development of a virtual hospitality manager using Artificial Intelligence and Big Data by developing niche data capture platforms” (paragraph 69).

Three questions reached the tribunal: whether HMRC could defend its closure notices on a ground other than the one it gave, whether a sub-contractor payment had been made, and whether the subcontracted work was R&D.

How the dispute got to a hearing

HMRC opened its enquiry by letter dated 26 January 2021, asking among other things for “copies of any project documentation” (paragraph 169). Between February and May 2021 the company gave a series of explanations of what it was doing. In July 2021 HMRC concluded that the R&D had not been sufficiently evidenced, and said it did not “require any further information about the R&D activity” at that stage. It added that “qualifying R&D activity still needs to be evidenced and further information can be provided at that time” (paragraph 29).

Closure notices followed on 16 February 2022, with an assessment under paragraph 52 of Schedule 18 FA 1998 to recover the £390,000 already paid (paragraph 5). The decision was upheld on review in April 2022, and the review considered the payment issue only (paragraph 9). The company appealed on that issue alone (paragraph 10). HMRC’s statement of case, served on 10 October 2022, defended the notices on the R&D issue as well (paragraph 11), and the company did not object at the time. Counsel was instructed on 12 June 2024, and the skeleton objecting to the wider scope arrived two days before the hearing (paragraphs 12 and 38).

The appeal was heard at Taylor House on 17 and 18 June 2024 and released on 11 July 2024. One detail is worth recording: neither side produced the closure notices. HMRC’s representative “explained that closure notices are generated automatically and that HMRC do not keep a copy”, and the tribunal added that “[a]lthough Tills Plus must presumably have copies of the closure notices, these did not find their way into the bundle” (paragraph 19). It worked from the covering letter.

What each side argued

On payment, HMRC submitted that the legislation “should be interpreted literally and strictly” (paragraph 80). On that reading, “the requirement for a payment to be made by the company to a sub-contractor can only be satisfied if there is a physical payment from the company’s bank account to the sub-contractor” (paragraph 80). It also submitted that the requirement was an anti-avoidance provision (paragraph 83). It relied on Henderson J in Gripple, that “a detailed and prescriptive code of this nature leaves little room for a purposive construction” (paragraph 87).

The company argued for a purposive reading. If a subcontractor’s invoice were settled by credit card, the money would come from the card company, and on HMRC’s reading that could not qualify — which, it said, cannot be right (paragraph 81). A loan under which the lender pays the subcontractor direct is no different in substance (paragraph 82).

On the R&D issue, HMRC pointed to “clear inconsistencies” between what it had been told in February to May 2021 and the report of December 2021 (paragraph 134). It argued there was no project conducted to a method or plan (paragraph 167), and said only a competent professional could fix a project’s start and end dates (paragraph 173). The company’s submissions were made “exclusively by reference to the December 2021 report”, on the footing that the earlier explanations had been written by a businessman rather than a technologist (paragraph 139).

The provision the case turns on

Section 1133(1) CTA 2009, in the version in force for these periods, read: “In this Part a ‘sub-contractor payment’ means a payment made by a company to another person (‘the sub-contractor’) in respect of research and development contracted out by the company to that person.” Section 1136(2) fixed the qualifying element of such a payment, where the parties are unconnected, at 65 per cent. Section 1053(1)(a) required the expenditure to be “incurred by [the company] in making the qualifying element of a sub-contractor payment”.

What the tribunal decided

On scope, the parties agreed the principles stated by the Court of Appeal in Fidex at [45] and approved in Investec at [66], set out at paragraph 17. Two matter here. The scope of an appeal is defined by “the conclusions stated in the closure notice and by the amendments required to give effect to those conclusions”, not by “the process of reasoning by which HMRC reached those conclusions”. And “HMRC can advance new arguments before the F-tT to support the conclusions set out in the closure notice”.

Applying them, the conclusion recorded in the closure notice was the reduction of the enhanced expenditure figures to zero, and HMRC’s view about the paid condition “represented their process of reasoning in reaching that conclusion” (paragraph 26). So “[t]here is therefore no reason why HMRC should not be able to rely on the R&D issue in supporting that conclusion” (paragraph 28). HMRC needed no permission (paragraph 33), the tribunal would have given it if needed (paragraph 34), and the hearing was not adjourned (paragraph 46).

On payment, the tribunal read sections 1133 and 1136 in context. It found the purpose of the requirement to be “to ensure that expenditure on R&D has genuinely been incurred and that the expenditure is at the cost of the company making the claim” (paragraph 91). Its conclusion, at paragraph 99: “what is required is that an obligation to the sub-contractor is discharged at the cost or expense of the company”. The invoices were addressed to Tills Plus and were its obligation; that obligation was discharged and replaced by a debt owed to the director (paragraphs 100 and 101). That the loan was interest-free and repayable on demand made no difference, HMRC having accepted it would not have challenged a straightforward shareholder loan (paragraph 103).

On the R&D issue the company cleared several hurdles. HMRC accepted, and the tribunal agreed, that the author of the December 2021 report was a competent professional working in the relevant field (paragraph 141). The report of December 2021 described an advance in technology (paragraph 143), set out the uncertainties and why they were not readily deducible (paragraph 144), and showed a plan (paragraph 145). Had it described the work iWond was engaged to do, the expenditure would have qualified (paragraph 148).

It did not. “Tills Plus has not provided a consistent explanation of the advance in technology which was being sought” (paragraph 149). The services description in the agreement made no mention of a multi-modal analysis tool. “Had that been the main objective, we do not consider it credible that it would not have been mentioned in the description of the services to be provided in the context of an agreement which … had a value of almost £2.5m” (paragraph 155). The invoices referred only to the modules (paragraph 157). The work contracted for “simply involved taking existing technology or products and combining them to provide an integrated system. There is no evidence that this would achieve any advance in science or technology by resolving scientific or technological uncertainties” (paragraph 161).

Two observations went against HMRC, neither of them necessary to the result. The February to May 2021 explanations were enough to establish a project, although the tribunal added that it did “not need to reach a decision on this point” (paragraph 170). And on project boundaries: “we can see no reason why a person who is not an expert in the relevant field cannot nonetheless identify the start and end dates for the project” (paragraph 173). The closure notices were upheld, and the appeal against the paragraph 52 assessment was allowed, HMRC having invited the tribunal to allow it as unnecessary (paragraphs 7, 177 and 178).

What it changes for a claim being prepared now

  • Settle the invoice in a way you can trace, and record the obligation. Payment by card, by a lender, or through a director’s loan can satisfy the condition, provided the company’s own obligation is discharged at the company’s cost. Write the loan down at the time: here the agreements were drawn up only once HMRC asked (paragraph 73).
  • Assume HMRC can widen the argument. A closure notice states a conclusion, not an exhaustive set of reasons. Answer the technical case even when HMRC says it is not pursuing it.
  • Make the contract say what the work is. The single sentence describing the services in the 2017 agreement decided this claim. A clause promising, say, the development and validation of a multi-modal deep-learning method capable of processing text, image, video and voice in one analysis pipeline would have matched the report. The one that was signed promised a virtual hospitality manager built from data capture platforms, and did not.
  • Keep the technical account and the commercial record in step. Invoices, variations and correspondence are what a tribunal weighs against a report written afterwards. The company said records of its exchanges with iWond existed, but did not put them in (paragraph 159).

Where it sits against the other decisions

Tills Plus adopts the competent-professional formulation from Flame Tree Publishing, calling it “a convenient description of such a person” (paragraph 121). It applies the point from Hadee Engineering at paragraph 217 that a plan need not be recorded in a particular way but should be recorded somewhere (paragraphs 112 and 168). And it takes from BE Studios Ltd v Smith & Williamson Ltd [2005] EWHC 1506 (Ch) at [44] to [46] that novelty plus technology is not R&D (paragraph 162) — the counterweight to the way Get Onbord is sometimes read. Mrs Sonia Gable also sat on Collins Construction; the rest sit in our register of R&D case law.

One caution about carrying the payment holding forward. This was the old SME scheme. For accounting periods beginning on or after 1 April 2024, section 1133 no longer defines a sub-contractor payment at all. It defines when a person “contracts out” R&D. The test in section 1133(2)(c) is whether that person “intended or contemplated when entering into the contract that research and development of that sort would be undertaken in order to meet those obligations” — see contracted-out R&D.

Has it been appealed?

No onward appeal has been reported, and no Upper Tribunal decision naming Tills Plus 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.

HMRC has not changed its published guidance as a result: nothing in the CIRD manual’s dated change log attributes an amendment to it, and it is not named in the published Research and Development Communication Forum minutes.

The decision is First-tier Tribunal, so it binds only the parties and sets no precedent. Its weight is practical: it is the clearest statement on the record of what “payment” requires for subcontracted R&D, and the clearest illustration of a claim failing because the narrative written later did not match the contract written at the time.

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.