Summary of Tribunal Decision: Realbuzz Group Ltd v HMRC (01 May 2025)

Background

Realbuzz Group Ltd had made R&D claims for the accounting periods ending April 2020 and April 2021, at different times. HMRC opened a Compliance Check on the April 2021 claim, and the R&D tax claim was removed from the accounts as the projects did not meet the threshold for R&D for tax purposes.  

As the April 2021 R&D claim had been disallowed, HMRC used their discovery powers to go back to the prior year ending April 2020 and re-examine the R&D claim eligibility.  Discovery powers were used as the window for opening a compliance check on that claim had passed. 

Realbuzz Group Ltd appealed the discovery assessment issued by HMRC on 1 June 2023, which disallowed a £335,452.57 R&D tax relief claim for the accounting period ending 30 April 2020. The claim was submitted in an amended return on 31 March 2021 and, importantly, supported by a detailed R&D report, for which the importance will become apparent later.

Key Issues for the Tribunal

Discovery Assessment Validity: Whether HMRC was entitled to raise a discovery assessment under paragraph 44(1) of Schedule 18 to the Finance Act 1998. 

Officer Awareness: Whether a hypothetical HMRC officer could reasonably have been expected to be aware of the excessive R&D claim before the enquiry window closed on 30 April 2022 for the accounting period ending April 2020. 

Information Made Available: Whether the 2021 R&D report, submitted during an enquiry into the subsequent year, constituted “information made available” for the 2020 claim. 

Tribunal Conclusion

The tribunal held that the hypothetical officer should have been aware of the excessive claim before the enquiry window closed, as a relevant report had already been provided for the accounting period ending April 2020. Therefore, HMRC was not entitled to raise the discovery assessment. The appeal by Realbuzz Group Ltd was allowed. 

Legal Implications

The legal implications of the tribunal’s decision in Realbuzz Group Ltd v HMRC are significant for both taxpayers and HMRC, particularly in the context of discovery assessments and R&D tax relief claims. See our breakdown below. 

Discovery Assessments Are Not Always Permissible

Under Paragraph 44(1) of Schedule 18 to the Finance Act 1998, HMRC can only raise a discovery assessment if a hypothetical officer could not reasonably have been expected to be aware of the tax insufficiency based on the information available when the enquiry window closed.

–  In this case, the tribunal found that a hypothetical officer should have been aware that the R&D claim was excessive based on the 2020 report.
–  Therefore, HMRC was barred from issuing a discovery assessment, even though the claim was ultimately found to be invalid.

Implication: 
Taxpayers are protected from retrospective assessments if they have made sufficient disclosure in their returns, even if the claim is later found to be incorrect.

Adequate Disclosure is a Legal Shield

The tribunal emphasised that adequate disclosure in a tax return can prevent HMRC from reopening a case via a discovery assessment.

– The officer doesn’t need to know the exact amount of tax underpaid, just that there was an actual insufficiency.

– If the return and accompanying documents clearly show that some part of the claim is invalid, HMRC must act within the enquiry window.

Implication:
Companies should ensure that R&D claims (or any tax relief claims) are well-documented and transparent. This can provide legal protection even if HMRC later disagrees with the claim. 

The Hypothetical Officer Test

The tribunal applied the “hypothetical officer” standard, an officer of general competence and reasonable knowledge of tax law, but not a specialist. 

– This officer is not expected to conduct further investigations or consult specialists. 

– If the information provided would alert such an officer to a potential issue, HMRC must open an enquiry within the statutory time limit. 

Implication:
This sets a clear benchmark for what HMRC must prove to justify a discovery assessment. It also limits HMRC’s ability to rely on hindsight or later-acquired information. 

No Need for Quantification at the Time

The tribunal clarified that the hypothetical officer does not need to quantify the tax insufficiency to be “aware” of it. 

Implication:
This interpretation favours taxpayers by lowering the threshold for what constitutes “awareness” and thus limiting HMRC’s ability to issue late assessments. 

Subsequent Information Not Always Relevant

The tribunal ruled that the 2021 R&D report was not “information made available” for the 2020 claim, even though it referenced overlapping projects. 

Implication:
HMRC cannot rely on later documents to justify a discovery assessment unless those documents clearly relate to the earlier period and meet the statutory definition of “information made available.” 

Summary of the tribunal and the decision

This limits HMRC’s powers to go back to prior years for R&D tax credits claims, especially where a report has been provided for previous years. Until recently, it was uncertain whether HMRC would open up previous R&D claims for examination, following a Compliance Check. This First Tier Tribunal result, though not binding in law, as only Upper Tribunal decisions become binding in law, will give reassurance to companies as to what HMRC could be permitted to do.  

It is not known if HMRC will appeal the case, which would take it to an Upper Tribunal, in which case the decision would become binding in law. In previous cases like this, HMRC has taken the decision not to appeal, to avoid that case law decision. We will have to wait and see what HMRC decides to do. 

In conclusion, taxpayers should ensure their submissions to HMRC are complete, transparent, and compliant with all relevant tax legislation to reduce the risk of disputes. If you or your business is facing an HMRC enquiry or has received a discovery assessment, and you need expert guidance, the experienced R&D Tax team at TBAT Innovation is here to help.