Taxpayer Victory in R&D Case Limits HMRC’s Discovery Powers

The First-tier Tribunal’s (FTT) recent decision in Realbuzz Group Ltd v HMRC [2025] UKFTT 493 (Realbuzz) offers welcome clarity on HMRC’s powers to issue discovery assessments in the context of Research and Development (R&D) tax relief claims. For companies facing similar enquiries, the case highlights key protections under the law, particularly around the limits of what HMRC can be assumed to know, and when it can reopen closed periods.

Factual Background

Realbuzz Group Ltd, an SME in the fitness and sports sector, claimed £335,452.57 in R&D tax relief for the accounting period ending 30 April 2020. HMRC did not open an enquiry during the statutory window, but later, while investigating the following year’s return, it formed the view that most of the company’s R&D projects did not qualify for that year. It then issued a discovery assessment to disallow the earlier year’s claim.

Realbuzz appealed, arguing that HMRC was not entitled to issue that assessment in relation to the 2020 return because the conditions for discovery had not been met.

The Legal Framework: Discovery Assessments

Under Schedule 18 to the Finance Act 1998:

• Paragraph 41 permits HMRC to issue a discovery assessment where it discovers that tax has been under-assessed or relief overclaimed.
• Paragraph 44 limits this power. No discovery assessment may be made where the officer could reasonably have been expected to be aware of the insufficiency based on information made available before the enquiry window closed.

The Tribunal’s Conclusions

The Tribunal confirmed that the burden of proof is on HMRC to prove, on the balance of probabilities, that the discovery assessment is valid.

Quantification

One of the central issues for the Tribunal was whether awareness of the insufficiency required the officer to be able to quantify the amount of relief overclaimed? On this point, the Tribunal found in favour of Realbuzz and allowed the appeal. It held that a hypothetical HMRC officer need not be able to quantify the amount of the insufficiency to be “reasonably expected to be aware” of it. However, it must be more than a vague suspicion—there must be enough information to support a reasonable belief that something is wrong.

Realbuzz’s claims for R&D relief for both 2020 and 2021 were supported by the company accountants’ R&D report for each corresponding year. The Tribunal also decided that the 2021 R&D report was not information that would clearly be relevant to an insufficiency of tax in the prior year (the taxpayer had argued that the 2021 R&D report was information made available to HMRC and should have alerted them to the insufficiency.)

Complexity

The Tribunal rejected arguments from HMRC that the technical nature of the R&D claim created a complexity that shielded it from scrutiny. The Tribunal emphasised that while specific projects may involve specialist knowledge, the legal framework for R&D relief is not so complex that it excuses HMRC from forming a view. It was held that the law relating to R&D applicable in this case is relatively straightforward.

Why This Matters for Taxpayers

The decision serves as a clear reminder that discovery assessments are not a fallback for missed enquiry windows. If HMRC had enough information at the relevant time, it cannot revisit closed periods simply because it has changed its view.

For companies facing R&D enquiries or assessments, Realbuzz provides three key protections:

1. Timely, clear disclosure helps close down risk. Even if your R&D report isn’t submitted during the filing window, the rest of your return and supporting materials may be enough to defeat a discovery assessment.
2. HMRC must do more than speculate. It cannot rely on general concerns or extrapolation from later periods to justify revisiting the past.
3. Strategic handling of claims matters. The way you present your R&D position through tax returns, reports, and correspondence can make the difference between a closed year and a reopened one.

Final Thoughts

The decision in Realbuzz represents a significant win for taxpayers and is a useful authority for resisting retrospective challenges to R&D claims. It shows that HMRC must meet a high bar before issuing discovery assessments and cannot simply rely on hindsight or assumptions.

If your business is under enquiry, or if HMRC has issued a discovery assessment in respect of a past R&D claim, please contact a member of the Tax team who may be able to support you in preparing your defence.

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