Judgment summary
RDM Wines Limited, an importer and distributor of fine wines trading as Fine Wines Direct UK, appealed against a Closure Notice issued by HMRC dated 18 December 2023 for the accounting period ending 31 October 2021 (2). The Closure Notice amended RDM's return to require an additional corporation tax payment of £14,972.95 and repayment of a tax credit of £28,414.06, a total of £43,387.01 in dispute (2).
The issue was whether RDM was entitled to claim research and development (R&D) relief under Chapter 2, Part 13 CTA 2009, read with the Guidelines on the Meaning of Research and Development for Tax Purposes (3, 9-19).
The Tribunal heard evidence from RDM's director, Mr Nigel O'Sullivan, and considered letters from a South African winery, Riebeek Valley Wine Co, email chains, invoices and an R&D Tax Relief Report prepared by RDM's agent, Aspen Waite (35-50). The Tribunal found significant inconsistencies in RDM's account of when its relationship with Riebeek began and what activities occurred, and placed very little weight on a late-produced letter dated 26 June 2026 (56-65). The Tribunal concluded RDM had not proved, on the balance of probabilities, that it or Riebeek undertook a project seeking an advance in science or technology, and dismissed the appeal (92-94).
Background
RDM Wines Limited was incorporated on 4 July 2008 and carries on business as an importer and distributor of fine wines in the United Kingdom, trading as Fine Wines Direct UK (4).
On 5 October 2022, RDM amended its corporation tax return for the accounting period ended 31 October 2021 to include a claim for R&D relief (5). HMRC opened an enquiry on 26 April 2023 under paragraph 24 of Schedule 18 to the Finance Act 1998, and issued a Schedule 36 Notice on 15 June 2023 seeking information, to which RDM's agent responded on 19 July 2023 (6).
On 18 September 2023 HMRC issued a pre-decision letter stating the projects did not meet the Guidelines requirements, and RDM's agent disagreed on 25 October 2023 (6). HMRC issued a closure explanation letter on 15 December 2023 and the Closure Notice on 18 December 2023, disallowing the R&D claims (7).
RDM appealed to HMRC on 12 January 2024, with further reasons given on 7 February 2024. HMRC issued its View of the Matter Letter on 13 February 2024. RDM accepted a review, and the Review Conclusion Letter of 31 October 2024 upheld the original decision. RDM appealed to the Tribunal on 20 November 2024 (8).
Core dispute
The dispute concerned whether RDM met the conditions in section 1044 CTA 2009 for R&D relief, HMRC not disputing that Conditions A (SME status) and C (carrying on a trade) were satisfied, but disputing Condition D, namely whether RDM had qualifying Chapter 2 expenditure (10-11).
This turned on whether RDM's expenditure qualified under section 1052 CTA 2009 (in-house direct R&D, requiring Condition B, that expenditure is attributable to relevant research and development undertaken by the company itself) or section 1053 CTA 2009 (contracted out R&D, requiring Condition A, that expenditure is attributable to relevant research and development undertaken on behalf of the company) (12-15).
The parties disagreed over the factual chronology of RDM's dealings with Riebeek Valley Wine Co, including when the relationship began, what canning trials were conducted, whether an iterative testing process of different wines, can sizes, gases and lining materials occurred, and whether any of this amounted to seeking an advance in science or technology within the meaning of the Guidelines (53-65, 71-92). HMRC also challenged the reliability of RDM's evidence, citing the fallibility of reconstructed memory, particularly in relation to a letter obtained from Riebeek shortly before the hearing (34, 55-59).
Court findings
The Tribunal found, on the balance of probabilities, that RDM's relationship with Riebeek began in or shortly before November 2022, not in 2020 or May 2021 as RDM asserted, because the contemporaneous documentary evidence (emails, invoices, purchase orders) only began in November 2022 and described Riebeek's client as "new" (56).
The Tribunal found that Riebeek carried out a canning run filling 200ml cans with 187ml of wine and nitrogen gas, occurring in or after November 2022, and that this was unsuccessful, followed by a further canning run using imported 187ml Ardagh cans in April and May 2023 (57-59, 64).
The Tribunal found that RDM had not discharged the burden of proving that any iterative process of testing different wines, can sizes, gases and lining materials took place, and gave very little weight to the letter dated 26 June 2026 from Mr Engelbrecht of Riebeek, applying principles on witness memory from Gestmin SGPS SA v Credit Suisse (UK) Limited, Hargreaves v HMRC and Cry Me A River Limited v HMRC (34, 59-62).
The Tribunal also found no contemporaneous documentary evidence corroborating the asserted level of internal RDM activity (project management, testing, quality control) claimed in the Aspen Waite R&D Tax Relief Report (63).
Applying the Guidelines, the Tribunal held that RDM had not shown the existence of a "project" conducted "to a method or plan" as required by paragraph 19 of the Guidelines (66-70), and had not shown that its activities sought an "advance in science or technology" as required by paragraphs 3 and 6, finding instead that the use of 200ml cans filled with 187ml of wine plus nitrogen gas was a result of commercial necessity to have the wine canned in South Africa, not a search for an advance in the field's overall knowledge or capability (85-92). The Tribunal relied on the Winemaker's Guide as representing the field's "overall knowledge or capability" and found RDM's activities fell within its described existing practices (85-87).
Outcome
The Tribunal dismissed the appeal, finding that RDM had not discharged the burden of proving an advance in science or technology or a project seeking to achieve one, and therefore did not meet the requirements for R&D relief (92-94). As RDM did not meet the eligibility requirements, the Tribunal did not need to consider the quantum of the claim (93).
Major issues / areas of contention
- Whether RDM met Condition D of section 1044 CTA 2009 (qualifying Chapter 2 expenditure)
- Whether the expenditure qualified under section 1052 CTA 2009 (in-house direct R&D) or section 1053 CTA 2009 (contracted out R&D)
- Whether RDM's and Riebeek's activities constituted a "project" conducted to a "method or plan" under paragraph 19 of the Guidelines
- Whether the activities sought an "advance in science or technology" under paragraphs 3 and 6 of the Guidelines
- The reliability and weight of reconstructed memory evidence, including a letter obtained from a third party shortly before the hearing
- The burden and standard of proof on the appellant to establish the factual chronology and nature of activities undertaken