Companies engaged in projects that qualify as research and development (R&D) can claim significant Corporation Tax deductions on qualifying expenditure. However, the rules on what qualifies as R&D are comprehensive and it will be necessary to show that a project complies with them in order to make a successful claim. Recently, a publishing company failed to convince the First-tier Tribunal (FTT) that work it had undertaken to make its catalogue available in digital form qualified as R&D.

The company's managing director had identified a demand for digital versions of books it had previously published in paper form. The company undertook work to make its archive available in digital form, as searchable resources. It filed an amended Corporation Tax return for the year ending 30 June 2018 including a claim for enhanced deduction for R&D on some of the resulting expenditure, reducing its Corporation Tax bill for the year by £50,662. HM Revenue & Customs (HMRC) enquired into the return and ultimately rejected the claim.

In its appeal to the FTT, the company claimed that the work carried out was an 'advance in science and technology' as defined in the guidelines from the then Department for Business, Innovation and Skills. HMRC submitted that the company had not shown that the work had resolved a scientific or technological uncertainty that could not have been resolved by a competent professional working in the field, or made an improvement to an existing process that would be acknowledged by a competent professional as being non-trivial. HMRC also claimed that the company was obliged to provide evidence from a competent professional, and that neither the manager nor the man responsible for the company's digital archive and server networks could be regarded as competent professionals in the field the work related to.

Rejecting the appeal, the FTT agreed that the two men were not competent professionals in the field of software, programming or computing. It followed that the company had not shown that the project was a qualifying technological advance. The FTT also agreed with HMRC that there was insufficient evidence that amounts claimed for employee costs had been spent on the work undertaken.