Corporation Tax Dispute Solicitors — R&D Credits, Transfer Pricing, GAAR, and HMRC Enquiries

HMRC's most common R&D challenge grounds are: (1) the activities do not constitute qualifying R&D — HMRC asserts that the project did not seek to achieve an advance in science or technology overall, or that there was no genuine technological uncertainty; (2) subcontractor costs are incorrectly claimed — HMRC disputes whether subcontractors were engaged to undertake R&D directly, or whether the subcontracted work meets the qualifying conditions; (3) staff costs include individuals not directly engaged in R&D; (4) the company does not meet the SME criteria and should be claiming under RDEC rather than the SME scheme. A solicitor challenges each ground with detailed technical evidence, prepared alongside technical experts, and — where HMRC's challenge is unfounded — takes the claim to the First-tier Tribunal.

Transfer pricing requires that transactions between connected companies (under TIOPA 2010 Part 4) are priced as if they had been agreed between unconnected parties dealing at arm's length. HMRC may challenge intercompany royalties (asserting the royalty exceeds arm's length levels — reducing the UK company's taxable profit); management fees; intercompany loans (asserting the interest rate exceeds arm's length); and the pricing of goods sold between group companies. HMRC uses the OECD Transfer Pricing Guidelines to determine the arm's length price. A solicitor instructs transfer pricing experts to prepare a robust arm's length pricing analysis, challenges HMRC's methodology, and represents the company at the Tribunal where agreement cannot be reached.

The GAAR (FA 2013 Part 5A) applies to tax arrangements that are "abusive" — arrangements that it would not be reasonable to regard as a reasonable course of action in relation to the relevant tax provisions. The GAAR applies to income tax, corporation tax, CGT, IHT, SDLT, and NIC. Before applying the GAAR, HMRC must refer the matter to the GAAR Advisory Panel, which gives an opinion on whether the arrangements are abusive. The Panel's opinion is not binding on the Tribunal but is influential. A solicitor advises on the GAAR Advisory Panel process, prepares representations showing that the arrangements are within the range of reasonable tax planning, and challenges any GAAR counteraction notice at the Tax Tribunal.

Once a corporation tax enquiry is closed by a closure notice (or where no enquiry was opened within the 12-month window), HMRC can only reopen the year by raising a discovery assessment. The conditions for a valid discovery assessment are: HMRC has discovered an insufficient assessment; the officer could not have been expected to be aware of the insufficiency from the information available when the enquiry window closed; and the assessment is raised within the applicable time limit (4 years — non-deliberate; 6 years — careless; 20 years — deliberate). Where full disclosure was made in the company tax return and supporting information, HMRC may be unable to satisfy the discovery conditions. A solicitor analyses whether a discovery assessment is valid and challenges it where the conditions are not met.

HMRC can charge inaccuracy penalties under FA 2007 Sch 24 where a company tax return contains an inaccuracy that leads to an understatement of tax. The penalty rates are: careless inaccuracy — 0–30% of the potential lost revenue; deliberate inaccuracy — 20–70%; deliberate and concealed inaccuracy — 30–100%. Reductions are available for unprompted disclosure (30% reduction), prompted disclosure (15% reduction), and the quality of disclosure (telling, helping, giving). A solicitor challenges the culpability level (careless vs deliberate), the quantum of the potential lost revenue, and the reduction applied — and appeals the penalty to the First-tier Tribunal where appropriate.