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Myriad Wins an Important Tax Tribunal Case for the Software Development Industry

Myriad is excited to announce an essential win for the software development industry, in our recent battle with HMRC over an R&D tax credit claim dispute.

Barrie Dowsett

Chief Executive Officer

11/07/2024

10 minute read


R&D Tax Credit Claim

On advice from Myriad, Get Onbord “GOL”, a software development company, applied for an R&D tax credit under section 1054 of the Corporation Tax Act 2009 (CTA 2009). R&D tax credits encourage companies to invest in innovation by offering financial relief for qualifying research and development activities.

GOL’s project aimed to create a novel automated AI system for ‘know your client’ (KYC) verification and risk profiling. This system was designed to outperform traditional human analysis and comply with all regulatory requirements.

The team at Myriad repeatedly demonstrated to HMRC that this project, from the outset, contained specific work streams aimed at advancing technical knowledge and capability within the wider software field.

However, HMRC R&D Compliance Team initially rejected GOL’s claim, arguing that their project did not meet the criteria for R&D. HMRC claimed the project did not constitute an advancement in the overall field of computer science or software technology. 

On behalf of GOL, Myriad appealed against the decision, which was handled by the Solicitor’s Office and Legal Services (SOLS), who provide legal services for HMRC.  The SOLS verdict supported the decision made by the HMRC Compliance Officer that the R&D project did not qualify.

Both Myriad and GOL truly believed that the software project qualified for R&D tax relief, so they appealed to the 1st Tier Tax Tribunal.

“We only took this to a 1st tier tribunal to represent software developers and protect their entitlement to claim R&D tax credits.  All the additional work done by Myriad and GOL relating to the compliance check, SOL’s appeal and representation at the tax tribunal was on a f.o.c basis.  We are specialist R&D tax advisers and stand behind our expertise and 20+ years of experience."

Barrie Dowsett, CEO of Myriad

Key Case Points

The key point to be discussed at the tax tribunal was whether the test for “research and development” in the BEIS Guidelines was met.  The Treasury had made regulations to follow the BEIS Guidelines in determining activities that qualify for the purposes of R&D tax relief.

The following BEIS Guidance passages most relevant to this R&D Tax Credit case were:

  • R&D for tax purposes takes place when a project seeks to achieve an advance in science or technology.
  • An advance in science or technology means an advance in overall knowledge or capability in a field of science or technology (not a company’s own state of knowledge or capability alone). This includes the adaptation of knowledge or capability from another field of science or technology to make such an advance where this adaptation was not readily deducible.

HMRC’s position was that “a complex platform … the project took a lot of hard work and dedication … impressive” but indicating that (despite all the information Myriad provided) they were “still unclear as to what advance has been achieved as per para 6 of the BIS guidelines”.  Their final and overall conclusion was, “Where I stand currently is that the product produced by Get Onbord Ltd is impressive, but it does not meet para 6 of the guidelines based on the information I have. I believe the product has used existing processes and technologies that were readily deducible to produce a new innovative product.”

Myriad employs technical analysts with domain expertise. In this case, Lauren Olson, current Senior Technical Analyst/Writer at Myriad and former Senior Consultant/Program Manager at Experian, discussed the R&D activities with Edward Cahill, Director of GOL, before preparing clear and concise technical reports. Edward Cahill has worked for over 25 years building models for investment banks. He has written code and described himself as an expert in building models to analyse risk.

Myriad provided extensive, detailed documentation to substantiate GOL's claim for R&D tax relief and extracts of this evidence can be found in paragraph 39 of the substantive case decision.

Mr Lewis, HMRC SOLS, asked Edward Cahill about the software development activities GOL had been doing:

“Mr Lewis asked Mr Cahill whether he would use pieces of existing code and Mr. Cahill said that of course he would. Every piece of code is built on existing code; nobody writes code from scratch. Why would you when someone else has already done the work? GOL works by taking components and adding to them. It is rare for a software development to be completely novel.”

“Mr Lewis put it to Mr Cahill that the HMRC CDO/CDI team said that all that he is doing is data analysis or processing. Mr Cahill said that you could say that about all sorts of artificial intelligence. At the core of what they are doing is a lot of data, but they are using it to try to provide an intelligent answer to a question.”

The evidence provided by Mr Umar, the HMRC Officer responsible for this compliance check, was limited. Mr Umar has no technology experience or expertise, nor was he aware of the credentials of those in the HMRC CDO/CDI team he sought advice from and who commented on his correspondence with GOL and its advisers. He does not know whether they have industry knowledge of KYC/ALM processes. This was the first software claim Mr Umar had dealt with.

An interesting development in this case was the shift of the evidence burden.  The Judge summarised this as there may come a point where GOL can say something along the lines of, “We have done enough to raise a case that our project comprised an overall advance in science and technology. What more can the Tribunal expect from us? The burden must now pass to the Revenue to produce some material”.

The Verdict

Judge Mark Baldwin concluded that GOL’s project represented a real advance in software development. They confirmed that GOL’s project met the R&D criteria under section 1054 CTA 2009.

The tax tribunal was satisfied, on the balance of probabilities, that

(1) GOL had a project with a defined aim;

(2) the technology GOL sought to develop and incorporate in the project was not already publicly available or readily deducible;

(3) the technology it sought to develop to achieve the project’s aims amounted to more than “routine” copying or adaptation of an existing product or process; and

(4) the project required the resolution of technological uncertainties which a competent professional working in the field could not have readily resolved.

In his verdict (Paragraph 91), Judge Mark Baldwin noted: “We can see detailed examples of particular pieces of development work undertaken in the September 2021 Myriad report and the December 2021 report. These examples show new features being created and experimented with and improved. None of these pieces of work appear to be routine or readily deducible developments.”

The verdict also noted: ‘…The question whether a development is an overall advance is a question to be answered in individual cases (by asking whether the development is a routine advance or otherwise readily discernible), but it is not necessary for that to be the case that each component part of the solution must itself be novel or bespoke to the project in question. As Mr Cahill observed, given the amount of open-source software/AI material available, if complete novelty were the test, no software project would ever amount to R&D. That is quite clearly not the case as the BEIS Guidelines themselves contemplate that an appreciable improvement to an existing process can amount to R&D.” Judge Mark Baldwin (Paragraph 94)

Our Commitment to Excellence

This victory sets a positive precedent for other software developers concerned about making an R&D tax credit claim or having been wrongly denied access to R&D tax credits.

All R&D tax claims require a comprehensive technical report that describes how this R&D project seeks to build upon the scientific and technological advancements within the wider field.  Software claims are about advancing knowledge and capability and evidence must be provided regarding the state-of-art baseline at the commencement of the project.

“This victory is a testament to our team’s expertise, experience, and determination to ensure that software development businesses receive their full entitlement to R&D tax credits. At Myriad, we aim to resolve HMRC R&D enquiries efficiently and effectively for our clients. This case required appealing the enquiry outcome to the tax tribunal, and our strategy was critical to our success.”

Barrie Dowsett, CEO of Myriad

Client Testimonial:

“Thank goodness I had Myriad as an advisor because I would not have had the knowledge or conviction to do this alone, and HMRC would have fined me. They still threatened to do so, but having an advisor stopped that line of attack."

— Ed Cahill, Former Director of Get Onbord Ltd

Download the full judgement

Myriad’s R&D Tax Enquiry Service

With increasing scrutiny on R&D tax credit claims, businesses must have expert guidance. At Myriad, we offer unmatched expertise in managing disputes with HMRC.

If you’re facing a challenge from HMRC regarding your R&D tax relief claim or have questions about this tribunal judgement, we’re here to help.

Please message or call us on 0207 118 6045 to learn how we can assist you with your R&D tax credit claims or HMRC enquiries.


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