Quinn (London) Ltd v HMRC: A Landmark in R&D Tax Relief

Background & Facts

Quinn (London) Ltd, a specialist construction and refurbishment firm, carried out complex projects, such as renovating listed buildings, under fixed-price contracts.

During these contracts, Quinn developed new technical solutions (e.g., reinforcing timber joists with steel supports) qualifying as in‑house R&D.

Quinn submitted claims under the SME R&D tax relief scheme for accounting periods ending 31 May 2017 and 2018. HMRC conceded the R&D was genuine but denied the enhanced relief, arguing the expenditure was “subsidised expenditure” under section 1138(1)(c) of the Corporation Tax Act 2009, i.e., indirectly covered by client payments

Legal Question

Does section 1138(1)(c) capture R&D costs that form part of a fixed-price contract within normal commercial considerations? In other words, can client payments covering general project costs amount to “subsidy”?

FTT Analysis & Outcome

Judge Harriet Morgan held that to meet the test in s.1138(1)(c), there must be a clear, direct (or indirect) link between the third-party payment and the R&D cost. A fixed price covering all project deliverables, including R&D, does not suffice.

Key points:

• Statutory structure suggests s.1138 intended to catch actual subsidies or reimbursements, not ordinary commercial contracts.

• Clients paid for the finished work, not to reimburse Quinn’s R&D expenses. No direct tracing between contract price and research cost.

• Applying HMRC’s view would nullify the SME relief for most businesses undertaking commercial R&D, which would conflict with legislative intent

The Tribunal also classified the case as “complex”, applying special costs rules

Conclusion: The appeal was allowed, Quinn retained its enhanced R&D relief claims.

Significance & Aftermath

Although FTT decisions aren’t binding, Quinn remains a vital legal benchmark demonstrating that embedded commercial payments does not equal subsidies.

The case was later indirectly endorsed by the Upper Tribunal in HMRC v Perenco UK Ltd [2023], which echoed the approach taken in Quinn on comparable subsidy issues.

What followed were further cases litigating the subsidised and contracted‑out exclusions, such as Stage One Creative Services Ltd and Collins Construction Ltd, with judgments in late 2024. These may have finally prompted HMRC to align its guidance.

Lessons

Commercial contracts at arm’s length, even those covering R&D, don’t automatically count as subsidies.

Always evaluate the purpose and structure of client payments. Without a specified link to research, they won’t trigger s.1138(1)(c).

The decision supports confidence in genuine SME R&D claims, even when embedded in broader contracts. But risks remain; continue to document R&D scope and contract terms, and stay abreast of evolving case law.

Conclusion

Quinn (London) Ltd v HMRC firmly asserts that commercially-based R&D costs, wrapped into client contracts, don’t automatically disqualify SMEs from enhanced tax relief. It bridges statutory interpretation and commercial real-world practice, anchored in legislative purpose.

As further cases unfold and HMRC’s guidance adjusts, Quinn remains a foundational reference for businesses navigating the complexities of modern R&D tax planning.