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Tax Tribunal Update: Tax Payer Subject to £25,000 Fine for Failure to Provide Adequate Records of Expenditure

Posted: November 28, 2019

The case concerned a Midlands based company (Teksolutions -Inc Limited) that made claims for the enhanced tax relief available for Research and Development.

HMRC inquired into these claims and found issue with the records kept by the company. The company had claimed taxable losses across two accounting years in the region of £400,000 – arising partially from the additional tax deductions available for R&D expenditure. After review HMRC assessed that the losses should be reduced to nil.

The company appealed against this decision and the matter was heard at the First Tier Tribunal. The Tribunal found that the record keeping in respect of the claimed expenditure was very poor and there seemed to be limited evidence that some expenditure had been incurred at all. The company attributed some of the missing evidence to a cyber hacking incident.

The Tribunal found in favour of HMRC on this matter and the reduction in losses and penalties were upheld.

Whilst this was an extreme case it does highlight the importance of keeping good records of expenditure. A further point to arise from the cases was also that in order to qualify as expenditure on R&D it does need to be paid – not just accrued in the company accounts.

If you have any queries on this please contact Tom Saltmer at ts@burgesshodgson.co.uk