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Get Onbord Ltd – A Solid Development Within the R&D Space, but Don’t Get Carried Away

Get Onbord Ltd – A Solid Development Within the R&D Space, but Don’t Get Carried Away

The research and development (R&D) industry has commented extensively upon the recent First-tier Tribunal result for software company Get Onbord Ltd, where many of the issues faced by claimants in their wranglings with HMRC over the past few years were at least touched upon if not dealt with in theory.

In this article, Tom Haslehurst, Ryan Senior HMRC Compliance Manager, R&D Technical, covers several of these issues from a purely technical standpoint, whilst retaining his overarching position, which is to exercise caution in celebration of this win. This is not a binding result, and it is entirely within HMRC’s remit and ability to interpret the facts of a similar case differently given the specifics. Be wary of those deploying the win as a sales tool. This remains as a first step, hopefully to be joined by others, at which point we can be permitted to start building our momentum.

The rules haven’t really changed; it is HMRC’s treatment of the most basic guidelines that has failed us. In conjunction with their focus on volume and what appears to be poor staff provisioning, this has resulted in a great many claimants being left with a wait while their valid claims work slowly through a flawed system. Little has changed. We just have a few more tools in the box now.

AI

With respect to the use of AI and qualifying R&D, many agents appear to be attempting to use AI as a kind of magic password in R&D claims. This is not responsible at all. There are numerous existing systems/services/platforms that enable someone with a novel (not necessarily qualifying) project to plug in and experiment. A few years ago, exactly the same was true of Blockchain, where users relied on its almost ethereal complexity to carry them through the claims process. It is fortunate in this case that Get Onbord was, in a demonstrable way, taking that extra step to leverage the power of AI in the processing of compliance data in a way unavailable using manual human analysis. I do feel they might have pushed harder on the level of trust required in such an application in a way that must have placed additional pressure on the automation being developed, but they rightly achieved their intended objective.

Overall Knowledge or Capability

Claiming that a project did not seek an advance in overall knowledge or capability within its industry as a whole is one of HMRC’s go-to techniques. Get Onbord does serve us here. HMRC was keen to deny the work on the basis that using existing tools and open-source software effectively disqualifies a project, but this ultimately failed them. The AI work carried out in this case demonstrated a clear advance, with HMRC failing to adequately evidence their negative position.

I particularly enjoyed this meaningless statement from HMRC during their exchange of letters with the claimant:

“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 produced, has used existing processes and technologies that were readily deducible to produce a new innovative product.”

For the sake of ease, we all know it, but HMRC loves to copy and paste it in their correspondence, so here’s para 6:

“6. 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 in order to make such an advance where this adaptation was not readily deducible.”

Empty platitudes regarding how personally impressed the caseworker was aside, we have a statement of a belief but no backing at all or indeed any indication that the caseworker was qualified to issue that statement. On this technical argument, and from HMRC’s perspective, the case was lost here.

The Burden

This is all about the burden of proof, which ultimately fell with HMRC, given its duty to evidence its negative position in the face of a reasonable explanation from a well-qualified software developer. Get Onbord stood its ground and would not be bullied.

This is, of course, extremely encouraging. While easiest to deploy here, the technique is not one that HMRC limits to software. It is one of HMRC’s favourite means of summarily dismissing high-quality qualifying work and should always be argued where appropriate. This First-tier Tribunal result serves as an argument for us all without being a smoking gun, noting of course that it also draws upon the Court of Appeal decision in Wood v. Holden regarding evidential burden, a hugely important and influential case.

It is the duty of the claimant to evidence their advance, but once done effectively, the negative burden of proof lies with HMRC, who in the realm of software, has continuously proven to be deficient in the adequate explanation of this position. In speaking with the chief digital and information officer (CDIO), it has been made depressingly clear to me in the past that their knowledge in this sector is lacking.

All of us in this industry have felt the sting of an HMRC claim that the work our client has performed does not advance industry knowledge. There is no requirement for every part of a project to be brand new for it to qualify. Not allowing claimants to rely upon existing material is a surefire way of arguing against every software claim and indeed most other claims that have ever been submitted. This hurts the scheme rather than supposedly protecting the interests of the taxpayer.

The Competent Professional

I was pleased to see this issue taken head on, given the somewhat woolly approach HMRC has taken to discrediting those with far more expertise.

“82. Although Mr Cahill does not have any formal qualifications in this area (nor, we note in passing, does Sam Altman, who dropped out of his computer science course at Stanford), Mr Cahill was a very impressive witness, who spoke with complete fluency about the technical way in which GOL’s project worked and answered Mr Lewis’ questions with assurance. Although his original witness statement suggested that someone else (we assume, Mr Guppy) was the competent professional, we are completely satisfied that Mr Cahill has experience (including in coding) and up-to-date knowledge of software capabilities, albeit perhaps only in the area he works in, to be a ‘competent professional’ for our purposes. He is far more than ‘a publisher with some familiarity with computing, [or someone who] was familiar with using computers but not a professional in the fields of programming or software development’ (to quote the FTT’s description of the two individuals who were held not to be competent professionals in Flame Tree Publishing).”

This is a brilliant result, and I look forward (albeit with some doubt and trepidation) to seeing HMRC concede this point in future claims. Qualification By Experience (QBE) is a contentious issue within R&D, which HMRC has consistently attempted to push back on in recent years. Anecdotally, we are already hearing of instances where HMRC has been encouraged to pull back on arguing this issue. I expect momentum in this area to continue to build in favour of the claimant.

A competent professional is not a round peg for a round hole. Life is complicated, and while guidance is available from the CIRD manual, the rules are not set in stone and are very much open to interpretation (as they should be). The guidance states that one would expect a competent professional to:

  • be knowledgeable about the relevant scientific and technological principles involved,
  • be aware of the current state of knowledge, and
  • have accumulated experience and be recognised as having a successful track record.

Of course, HMRC has fallen back on this statement all too often:

  • Simply having worked in a field or having an intelligent interest in it does not, by itself, make a person a competent professional.

As the term is not defined in legislation, it takes its ordinary everyday meaning. Everything above that is an HMRC construct, and its attempt to impose its position in Get Onbord clearly fell flat. Having personally witnessed HMRC attempting to discredit someone in possession of an OBE for services performed for the industry in which he claimed to be a competent professional, I find the comments in Get Onbord wholly comforting.

Regardless of the above, my message remains the same. This is an individual nonbinding case and cannot be 100% relied upon to win enquiries. It helpfully joins the crowd, contrasting nicely with the Tills Plus case while reinforcing other nonbinding decisions also presented during this case. AHK Recruitment Limited v. HMRC, [2020] UKFTT 232 (TC), Flame Tree Publishing Limited v. HMRC, [2024] UKFTT 00349 (TC) are good examples cited in this case that demonstrate where we will see this decision leveraged in the future. Watch this space.

I’ll finish with a view that may not be popular with some – HMRC compliance checks are a good thing. I’ll justify the position though. Compliance checks allow the conversation between the claimant and the tax authority to continue. The world changes and the baseline advances, and this system only works if both parties are eager to engage with one another in a positive way. Compliance checks only achieve this though where agents claim responsibly and when HMRC takes its fingers out of its ears.

If you’d like support with an HMRC enquiry into your R&D tax relief claim, Ryan’s enquiry resolution service is here to help.