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      In M&C Educational Training Services Ltd (M&C) v HMRC, the taxpayer (M&C) appealed to the First-tier Tribunal (FTT) against HMRC’s decision to reject claims for research and development (R&D) tax relief made in respect of two separate accounting periods. M&C’s appeal was rejected by the FTT.

      Although the company aimed to disseminate existing scientific knowledge in a technology-driven manner, it did not seek to advance existing scientific knowledge or capability in the field of metallurgy itself. Therefore, the project did not meet the requirements of the Department of Science, Innovation & Technology (DSIT) Guidelines on the meaning of R&D for tax purposes.

      Background

      M&C provided education and training in the field of metallurgy via an e-learning platform. It claimed R&D tax relief in relation to “creating new teaching materials and methodologies that address educational gaps” through developing an e-learning platform that provided “unique, new and innovative methods of providing information, education and training” in the field of metallurgy. The issue at stake, being a fundamental requirement for a claim for R&D tax relief, was whether M&C had sought an advance in a recognised field of science or technology.

      Carol Johnson
      Carol Johnson

      Tax Partner - Innovation Incentives

      KPMG in the UK

      Issue

      M&C submitted that it had used innovative methods to develop and deliver its educational courses; for example, by converting metallurgical microsections into a format suitable for educational use. M&C, therefore, submitted that it had sought an advance in the field of metallurgy as there were no existing providers of such courses, and that it was “creating new teaching materials and methodologies”.

      Judgment

      In rejecting M&C’s appeal, the FTT agreed with HMRC that M&C’s activities were fundamentally in relation to the provision of education and, therefore, had not sought to advance the scientific field of metallurgy. M&C were disseminating existing knowledge or capabilities, and it was irrelevant whether this was in a novel or innovative manner from an educational perspective: “Increasing and/or improving the workforce by using innovative ways of educating and training them with existing publicly available knowledge and existing capabilities in the field of metallurgy does not mean that the appellant itself has made an advancement in the relevant field of science itself within the meaning of the Guidelines.”

      Comment

      This case serves as a useful reminder of the definition and boundaries of R&D for tax purposes, the complexity of R&D tax relief legislation, and the importance of seeking the advice of a competent adviser when preparing claims.

      Claimants should ensure that any projects included in an R&D claim relate directly to the seeking of an advancement in a field of science or technology. Advancements sought in a non-scientific field will not qualify for R&D tax relief, even if that field serves a secondary scientific or technological purpose (for example, scientific education).

      To maximise relief whilst ensuring only eligible projects and costs are included in R&D tax claims, it is important that claimants seek expert advice. In particular, this case highlights the need for accurate and legislation-driven assessment when determining whether a given project is eligible for tax relief.

      The Innovation Reliefs and Incentives (IRI) team at KPMG in the UK assists claimants to prepare robust R&D tax incentives claims across various industries and claimant sizes. Please contact the authors or your usual contact for further information on how the team can help you.

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