First-Tier Tribunal Case Summary– Get Onbord Limited V HMRC

In a big step forward for R&D Tax Credits, HMRC has recently lost a case at the first-tier tribunal against software company Get Onbord Ltd. The key issue was whether the company’s activities aligned with the Research & Development criteria outlined in the BEIS guidelines. The Tribunal determined that Get Onbord’s activities did in fact meet these guidelines.

This decision is a fantastic demonstration of the realities of software development and the use of existing technologies when carrying out R&D in the software field. Something, which up until now, HMRC caseworkers have been wholly relying on to try and discredit and disqualify eligible R&D projects. It highlights that utilising existing tools and open-source software does not disqualify a project from being considered R&D, provided the project demonstrates substantial innovation and isn’t merely routine development.

For any of those wanting to know more, I have summarised the tribunal case document and highlighted the key takeaways below.

Get Onbord Limited V HMRC

• HMRC said that Get Onbord Ltd’s (GOLs) project did not advance overall knowledge or capability and therefore wasn’t R&D. 

• The project in question sought to develop a novel, automated artificial intelligence AI analysis process for know-your-client (KYC) verification and risk profiling. This would achieve a superior outcome to human analysis and meet all regulatory and legislative requirements. 

• Despite HMRC affirming GOLs technology as “impressive,” they stated that they were unclear as to what advance has been achieved and cited para. 12 of the BEIS guidelines – “the routine analysis, copying or adaption of an existing product, process, service or material, will not be an advance in science or technology” – as a reason for striking out the claim, on the grounds that the product produced used existing technologies that were readily deducible to produce a new innovative product. 

• Weaknesses in existing technologies were presented by GOL, demonstrating a clear gap in technological capability (and simultaneously evidencing that it is not readily deducible).  

• HMRC responded that its own Chief Digital Information Officers had looked at the R&D and concluded that no R&D had taken place and did not provide any reasons to support their view. (Alongside the HMRC witness having no technology experience, this approach also implies/assumes that the competency of the HMRC digital team was greater than the claimants!) 

• GOLs Mr. Cahill, first established himself as a competent professional (25+ years in the field, knowledge of the technical principles involved, and ability to describe the state-of-the-art) and explained that the project created new knowledge and capability using existing code. Most notably, he said, “Every piece of code is built on existing code; nobody writes code from scratch. Why would you when someone else has already done the work? GOL works by taking components and adding to them. It is rare for software development to be completely novel” 

• It was again highlighted that the HMRC caseworker had no experience in software (in fact, this was his first software claim) and did not know any of the credentials from the HMRC digital team that he sought advice from. 

Tribunal discussion

• The burden of proof is on the company making an R&D tax claim, not HMRC, to justify its decision to deny the credits claimed. However, in cases of ‘shifting the evidential burden’ where the claimant has done enough to show that there was in fact, a technological advance. The burden must now pass to HMRC to produce some material to show otherwise. This part is an example that was cited by the Tribunal “We have done enough to raise the case that our project comprised an overall advance in science and technology. Over to HMRC to produce some material to show that, despite what appears from everything we have produced, our project was a routine advance.” (Para. 75–77 & 96.)

• Although Mr. Cahill did not have any formal qualifications in this particular area and was “not a professional in the fields of programming and software development,” he spoke with complete fluency about the technical elements of the R&D project and demonstrated experience in coding and up-to-date knowledge of software capabilities within the industry baseline. The tribunal used Sam Altman, the CEO of OpenAI as an example of a competent professional not having formal qualifications in the field (he dropped out of Stanford while studying computer science).
• The tribunal does not consider that, by itself, the use of open source, or other existing, materials is an indication that a particular development is routine or readily discernible from publicly available materials.The question of whether a development is an overall advance is a question to be answered in individual cases (by asking whether the development is a routine advance or otherwise readily discernible), but it is not necessary for that to be the case that each component part of the solution must itself be novel or bespoke to the project in question. Given the amount of open-source software/AI material available, if complete novelty were the test, no software project would ever amount to R&D. 

Our key takeaways 

• The utilisation of existing technology does not preclude an activity from constituting R&D. Innovation often involves integrating existing technologies to achieve advancements in a particular field. 

• The lack of comparable capability elsewhere in the market can form sufficient demonstration that the innovation is not readily deducible by other competent professionals (note, this should not be solely relied on as evidence of R&D). 

• HMRC’s approach to dealing with R&D tax claim enquiries and “undermining innovation” are not relevant at the Tribunal, only if they have applied the law correctly. 

• A competent professional does not need to have a formal qualification in the relevant R&D field. A good technical understanding of the principles involved, the ability to describe the state-of-the-art and industry experience can be good evidence of being a competent professional.  

• Shifting the evidential burden is a situation where the claimant has done enough to show that there was in fact, a technological advance. The burden must now pass to HMRC to produce some material to show otherwise. 

If you would like to speak to our TBAT team regarding your project and R&D Tax Credits, get in touch today.