Tribunal allows taxpayer's R&D appeal

In Realbuzz Group Ltd v HMRC [2025] UKFTT 493 (TC), the First-tier Tribunal (FTT) allowed the taxpayer's research and development (R&D) appeal confirming that HMRC could not issue a discovery assessment because the information provided by the taxpayer to HMRC before the enquiry window closed was sufficient to enable a hypothetical HMRC officer to realise that tax had been under assessed.

Background

Realbuzz Group Ltd was established in 2000. It focusses on the fitness, sports and running industries, providing online content, social networking and online entry systems for events such as the London Marathon and related charity fundraising programmes. It also enables participation in “virtual events” where the participants take part in, for example, a marathon or half marathon, running on their own in their own area rather than joining an organised mass participation event. 

Realbuzz filed its corporation tax return for the accounting period ending (APE) 30 April 2020 on 22 December 2020, submitting two subsequent amendments,  the final one on 31 March 2021. This final amendment included a claim for £335,452.57 R&D tax relief, supported by an R&D report prepared by the company’s accountants. The report was compiled by the accountants' R&D team in consultation with Realbuzz’s technical team and assessed each project’s eligibility based on the relevant tax legislation, the BIS Guidelines, and HMRC’s published guidance.

On 13 July 2021, Realbuzz filed its return for APE 30 April 2021, which also included an R&D claim. HMRC opened an enquiry into this return on 17 September 2021. The accountants responded to HMRC’s enquiries on 15 November 2021, providing a second R&D report that covered many of the same projects from the 2020 claim, some of which had commenced in 2019.

On 13 April 2022, the HMRC officer dealing with the enquiry, Mr Patel, advised that most of the claimed projects did not qualify as R&D for tax purposes, although he considered a few sub-projects might. He invited the accountants to provide further explanations and issued a questionnaire for specific projects, noting he would seek input from HMRC’s software specialists.

The last date on which HMRC could open an enquiry into Realbuzz’s 2020 return was 30 April 2022. In September 2022, Ms Martin took over the case from Mr Patel and on 8 March 2023, she issued a closure notice denying the APE 2021 R&D claim in full. She also indicated her intention to raise a discovery assessment for APE 2020. This was based on her view that similar inaccuracies existed in the earlier period, given that some projects spanned both accounting periods.

On 1 June 2023, HMRC issued a discovery assessment for APE 2020, pursuant to paragraph 41, Schedule 18, Finance Act 1998. Realbuzz appealed the assessment to the FTT.

FTT's decision

The appeal was allowed. 

Realbuzz argued that, for the purposes of paragraph 44(1), Schedule 18, Finance Act 1998, HMRC could have been reasonably expected, on the basis of "information made available" to it, to be aware of the situation referred to in paragraph 41. It also argued that additional information — specifically the 2021 R&D report — also amounted to "information made available" to HMRC, which further supported HMRC's awareness of the tax loss.

The FTT agreed with Realbuz. It held that a hypothetical HMRC officer, reviewing the 2020 return and accompanying report at the time, would have been reasonably expected to realise that the R&D claim was, at least in part, excessive. Importantly, the FTT rejected HMRC’s argument that the officer must be able to quantify the insufficiency in tax before a discovery could be valid. It confirmed that an awareness of an insufficiency is sufficient, even if the precise amount cannot be determined at that point.

Moreover, the FTT confirmed that the hypothetical officer is not assumed to have specialist technical knowledge (such as software development expertise). In this case, the FTT concluded that the 2020 report was sufficient to raise awareness of the likely over-claim, even without the benefit of expert analysis.

With regard to the 2021 report, the FTT made clear, in obiter comments, that it did not constitute "information made available" for the purposes of the 2020 period. The report related to a different accounting period and could not be inferred from the earlier return. While it may have supported HMRC’s suspicions, it did not provide a clear basis for awareness of an insufficiency in the 2020 return.

Comment

This case reinforces the importance of proper disclosure by taxpayers to HMRC and a timely response by HMRC. Where sufficient information has been provided within the enquiry window to alert a hypothetical officer to a potential tax loss, HMRC cannot rely on its discovery powers contained in paragraph 41, Schedule 18, Finance Act 1998, as a fallback. For advisers and taxpayers, the decision also highlights the value of well-structured R&D reports that demonstrate good faith engagement with the R&D qualifying criteria.

The decision can be viewed here.