2021 Cost Cap Rumours and Speculation

[mwillems]

Overspend, yes. Advantageous, no.

that is impossible to prove, Surely if it wasnt an advantage, they would have dedicated more out their obvious talents to stay under it? I mean every other team tried its best to maximise every cent they had, How can you expect any body to believe Redbull was the ONLY team not to do this? i dont buy it, neither does any body not a redbull / max fan.

They went over because they did more than maximise it, they maximised it + 1.8 million more... so yes it was an advantage, they spent 1.8 mill more, if they wasted it, tough, its irrelevent, they stills pent more, the rules say to be under it / on it, not aim for just above it.

No, it's very easy.
Say, budget cap is 100M
Team A spent 102M and got a 2M tax break, abiding the cap.
Team B spent 102M and applied for a 2M tax break but did not get it, breaching the cap.

Overspend? Yes. Advantageous? No.

I suspect we will find out that RB tried to move the Tax Credit to Financial Year 2022 thinking they were under budget in 21 year by so much, they could increase the budget for this year by moving the credit into 2022. But even so it was a near half million overspend and given how tight that last race was, it was enough to be able to tip the title one way or another.

See you in 11 months if RB don't manage to dig themselves out of a massive hole.

[SiLo]

Can someone explain to me how RB expected to get this tax break? I can't find the info on it again now but when I first read about the tax break criteria, I thought no F1 team should be getting that break in any way.

[mwillems]

Can someone explain to me how RB expected to get this tax break? I can't find the info on it again now but when I first read about the tax break criteria, I thought no F1 team should be getting that break in any way.

They did get the tax break. The FIA say they didn't "apply it correctly". Which means either the amount was wrong, or it was costed to the wrong type of expense or that it was done in the wrong period.

As an example of how the dates can come into play, it is possible they applied for the tax break in June 2021 and that the break should therefore apply to the 21 Cost Cap Financial Year, even if they received the tax break in February 22.

Or it is totally feasible that the error was that they applied it to an expense that was Cost Cap exempt, when it should have been applied within the cost cap.

Of course I doubt that since any team that spies an extra 1.8m to spend will find a way to apply it within the cap. So I suspect they tried to make it apply to this year.

But given that they had the chance to do a dry run, and didn't, and that they had the chance to engage directly with the FIA, and didn't, then this can be classed as gross negligence at best.

[littlebigcat]

Overspend, yes. Advantageous, no.

that is impossible to prove, Surely if it wasnt an advantage, they would have dedicated more out their obvious talents to stay under it? I mean every other team tried its best to maximise every cent they had, How can you expect any body to believe Redbull was the ONLY team not to do this? i dont buy it, neither does any body not a redbull / max fan.

They went over because they did more than maximise it, they maximised it + 1.8 million more... so yes it was an advantage, they spent 1.8 mill more, if they wasted it, tough, its irrelevent, they stills pent more, the rules say to be under it / on it, not aim for just above it.

No, it's very easy.
Say, budget cap is 100M
Team A spent 102M and got a 2M tax break, abiding the cap.
Team B spent 102M and applied for a 2M tax break but did not get it, breaching the cap.

Overspend? Yes. Advantageous? No.

They incorrectly applied it to the cost cap.

They only spent £2m over because a member of staff said they could, when they were wrong. So really they should have spent £98m which means £2m less in non fixed costs. That’s performance related costs.

Financial competency is now part of the sport. Red Bull failed at it.

[DChemTech]

They incorrectly applied it to the cost cap.

They only spent £2m over because a member of staff said they could, when they were wrong. So really they should have spent £98m which means £2m less in non fixed costs. That’s performance related costs.

Financial competency is now part of the sport. Red Bull failed at it.

The discussion point here was: did one team gain an advantage in development over competitors of ~0.4M or of ~1.8M.

If both teams spent the same amount on development (102 M in this hypothetical example), then the teams had equal funds available for development, even if one team got 2M back (abiding the cap) and the other team, while being eligible for the same 2M, did not due to an error on their own behalf (thus breaching the cap). Hence, the team that breached the cap did not have a development advantage over the competition: they spent exactly the same amount on development as the competitor, while it cost them 2M more.

And sure, one solution was to spend 2M less and take a development disadvantage compared to the competition, that would have been a solution. But that doesn't mean they have an advantage by spending the money and not getting the tax break. They still spent the same amount on development as the competition did.

And sure, they can be penalized for failing in terms of financial competency and rightfully so. But that still doesn't mean that the incompetency in terms of failing to get the tax break gave them a performance advantage compared to the competition.

-------------------------------------------------------------
Now, going back from the hypothetical above to the situation here, my take with the information that we have is:
- RB, like other teams, was eligible for a tax break
- RB, like other teams probably did, factored that into their budget and adapted their spendings accordingly.
- RB failed getting the break that they were eligible for through a fault of their own.
- The consequence is that RB did not spend more on development than other teams, but it did cost them more because they had to pay a certain amount of taxes that other teams were exempt from (or got back).
- Since this tax is accounted in the cost cap, RB exceeded the overall cap, on these grounds, by 1.4M pound.

Based on this information (regarding this specific aspect of te breach), RB did not have an active development advantage over competitors in the sense that they had more money to spend on development than competitors.
They had a financial disadvantage in that the same spending did cost them more by not getting the tax exemption, but that's their own fault in the end.

If they had applied the tax break in the cost cap as they should have, they would have had a development disadvantage compared to the competition, and in hindsight they should have. But, considering they were eligible for the tax exemption, I do not think you can blame them for factoring it in before they got it - that seems to be rather standard practice to me, and would be absolutely no problem if they did not cock up the subsequent application.
The fact that they did mess that up is, indeed, failing at financial competence and a penalty for that is fair (the fact that they already had a 'penalty' of 1.4M in higher tax expenses is irrelevant there - it's their own fault).
But, considering that they were eligible for the tax break (hence it's not outrageous they factored it in) and did not gain an active development gain over competition from this, a financial penalty seems to be a fair solution to me - and that's what they got. Hence, I consider the penalty to be fair.
Note, this considers the tax break part - not the other 0.4M.

[F1Supporter]

that is impossible to prove, Surely if it wasnt an advantage, they would have dedicated more out their obvious talents to stay under it? I mean every other team tried its best to maximise every cent they had, How can you expect any body to believe Redbull was the ONLY team not to do this? i dont buy it, neither does any body not a redbull / max fan.

They went over because they did more than maximise it, they maximised it + 1.8 million more... so yes it was an advantage, they spent 1.8 mill more, if they wasted it, tough, its irrelevent, they stills pent more, the rules say to be under it / on it, not aim for just above it.

No, it's very easy.
Say, budget cap is 100M
Team A spent 102M and got a 2M tax break, abiding the cap.
Team B spent 102M and applied for a 2M tax break but did not get it, breaching the cap.

Overspend? Yes. Advantageous? No.

They incorrectly applied it to the cost cap.

They only spent £2m over because a member of staff said they could, when they were wrong. So really they should have spent £98m which means £2m less in non fixed costs. That’s performance related costs.

Financial competency is now part of the sport. Red Bull failed at it.

Yeah this makes sense. They messed up, so they shouldn't have spent that extra money, so performance WAS gained. because they messed up. Like someone said, if they didnt put enough fuel in, for a fuel sample, they still get DSQ'd because someone messed up.

[f1jcw]

Interesting read

https://archive.ph/OghOj#selection-881.0-900.0

[Alexf1]

They incorrectly applied it to the cost cap.

They only spent £2m over because a member of staff said they could, when they were wrong. So really they should have spent £98m which means £2m less in non fixed costs. That’s performance related costs.

Financial competency is now part of the sport. Red Bull failed at it.

The discussion point here was: did one team gain an advantage in development over competitors of ~0.4M or of ~1.8M.

If both teams spent the same amount on development (102 M in this hypothetical example), then the teams had equal funds available for development, even if one team got 2M back (abiding the cap) and the other team, while being eligible for the same 2M, did not due to an error on their own behalf (thus breaching the cap). Hence, the team that breached the cap did not have a development advantage over the competition: they spent exactly the same amount on development as the competitor, while it cost them 2M more.

And sure, one solution was to spend 2M less and take a development disadvantage compared to the competition, that would have been a solution. But that doesn't mean they have an advantage by spending the money and not getting the tax break. They still spent the same amount on development as the competition did.

And sure, they can be penalized for failing in terms of financial competency and rightfully so. But that still doesn't mean that the incompetency in terms of failing to get the tax break gave them a performance advantage compared to the competition.

-------------------------------------------------------------
Now, going back from the hypothetical above to the situation here, my take with the information that we have is:
- RB, like other teams, was eligible for a tax break
- RB, like other teams probably did, factored that into their budget and adapted their spendings accordingly.
- RB failed getting the break that they were eligible for through a fault of their own.
- The consequence is that RB did not spend more on development than other teams, but it did cost them more because they had to pay a certain amount of taxes that other teams were exempt from (or got back).
- Since this tax is accounted in the cost cap, RB exceeded the overall cap, on these grounds, by 1.4M pound.

Based on this information (regarding this specific aspect of te breach), RB did not have an active development advantage over competitors in the sense that they had more money to spend on development than competitors.
They had a financial disadvantage in that the same spending did cost them more by not getting the tax exemption, but that's their own fault in the end.

If they had applied the tax break in the cost cap as they should have, they would have had a development disadvantage compared to the competition, and in hindsight they should have. But, considering they were eligible for the tax exemption, I do not think you can blame them for factoring it in before they got it - that seems to be rather standard practice to me, and would be absolutely no problem if they did not cock up the subsequent application.
The fact that they did mess that up is, indeed, failing at financial competence and a penalty for that is fair (the fact that they already had a 'penalty' of 1.4M in higher tax expenses is irrelevant there - it's their own fault).
But, considering that they were eligible for the tax break (hence it's not outrageous they factored it in) and did not gain an active development gain over competition from this, a financial penalty seems to be a fair solution to me - and that's what they got. Hence, I consider the penalty to be fair.
Note, this considers the tax break part - not the other 0.4M.

The other 0.4M could easlily have been avoided by structuring their catering costs per firm instead of trying to exclude the total bill of 1.4M from the cap. Catering of RBPT and RB17 road car employees were now included which is just silly. Fits the above financial disadvantage example of every competitor spending the same ttl but only 1 has to include a part that is normally excluded because of administration reasons.

[dans79]

Interesting read

https://archive.ph/OghOj#selection-881.0-900.0

A journalist that actually gets the entire picture, and isn't afraid to say so. I think the last paragraph is particularly poignant!

[InsaneX_Badger]

Interesting read

https://archive.ph/OghOj#selection-881.0-900.0

F1 now realising that the increased popularity is a double edged sword. The controversies in the sport get shown just as much, but often more, than the successes of it. Honestly think this toxicity will only go away when the main protagonists aren't on the grid and paddock. Think regardless of what team/driver preference you have, it's spilling over into something ugly and could have some serious effects

[f1jcw]

Think regardless of what team/driver preference you have, it's spilling over into something ugly and could have some serious effects

This is my thoughts aswell, and also disillusionment amongst long time fans, as they feel they have being played.

[henry]

It seems to me that this R&D tax credit thing is remarkably complex and I don’t think we have seen the whole story. As such any interpretation from what we do know now as to whether and what RB are entitled to will be dependant on assumptions and likely bias. No doubt there are others here who can enlighten me, and others, about how these things work.

Some info:

The criteria

The tax credit qualification criteria are set out here https://www.gov.uk/guidance/corporatio ... -rd-relief. Qualifying activities look a bit like patent rules, novel and non-obvious.

Advances in the field
Your project must aim to create an advance in the overall field, not just for your business. This means an advance cannot just be an existing technology that has been used for the first time in your sector.

The process, product or service can still be an advance if it’s been developed by another company but is not publicly known or available.

Show that a professional in the field could not work this out
You should explain why a professional could not easily work out your advance.

You can do this by showing that other attempts to find a solution had failed.

You can also show that the people working on your project are professionals in that field and get them to explain the uncertainties involved.

I wonder what non-obvious advance in what field RB claimed they had made that isn’t just for their business?

The finances

The amount of RB’s claim, £1,431,438 equates to an R&D spend of £11m. (The credit relief is 13% of the outlay).

A complication is that we have two financial bodies that need to be satisfied in two different reporting periods.

To qualify for the cost cap, activities must take place in the period January to December 2021, and to qualify for the tax credit, between April 2021 and March 2022. So for the qualifying activity, £11m spend must have taken place between April and December.

As I understand it the Cost Cap refers to actual, hindsight, costs. I assume that if you are claiming a credit against these costs it can only be done in hindsight, I.e. after the December 31. I don’t know how the tax system works. Can one claim before the work is done? Or before the end of the tax year in which the credit will be reconciled?

It has been claimed that RB might have included this credit but forgot to. Does this mean that they could have made a claim against the expectation that they would later file for the tax credit after the CC documentation was submitted? Is this why it is described as notional?

Finally, has the credit been allowed? We can’t see it in Red Bull’s accounts because they haven’t, as yet, been filed.

I assume the FIA referred to this credit as mitigation to justify the extent of the penalty that was negotiated and agreed by Red Bull. What if it’s not allowed? What if HMRC decide that the work didn’t qualify?

[diffuser]

They incorrectly applied it to the cost cap.

They only spent £2m over because a member of staff said they could, when they were wrong. So really they should have spent £98m which means £2m less in non fixed costs. That’s performance related costs.

Financial competency is now part of the sport. Red Bull failed at it.

The discussion point here was: did one team gain an advantage in development over competitors of ~0.4M or of ~1.8M.

If both teams spent the same amount on development (102 M in this hypothetical example), then the teams had equal funds available for development, even if one team got 2M back (abiding the cap) and the other team, while being eligible for the same 2M, did not due to an error on their own behalf (thus breaching the cap). Hence, the team that breached the cap did not have a development advantage over the competition: they spent exactly the same amount on development as the competitor, while it cost them 2M more.

And sure, one solution was to spend 2M less and take a development disadvantage compared to the competition, that would have been a solution. But that doesn't mean they have an advantage by spending the money and not getting the tax break. They still spent the same amount on development as the competition did.

And sure, they can be penalized for failing in terms of financial competency and rightfully so. But that still doesn't mean that the incompetency in terms of failing to get the tax break gave them a performance advantage compared to the competition.

-------------------------------------------------------------
Now, going back from the hypothetical above to the situation here, my take with the information that we have is:
- RB, like other teams, was eligible for a tax break
- RB, like other teams probably did, factored that into their budget and adapted their spendings accordingly.
- RB failed getting the break that they were eligible for through a fault of their own.
- The consequence is that RB did not spend more on development than other teams, but it did cost them more because they had to pay a certain amount of taxes that other teams were exempt from (or got back).
- Since this tax is accounted in the cost cap, RB exceeded the overall cap, on these grounds, by 1.4M pound.

Based on this information (regarding this specific aspect of te breach), RB did not have an active development advantage over competitors in the sense that they had more money to spend on development than competitors.
They had a financial disadvantage in that the same spending did cost them more by not getting the tax exemption, but that's their own fault in the end.

If they had applied the tax break in the cost cap as they should have, they would have had a development disadvantage compared to the competition, and in hindsight they should have. But, considering they were eligible for the tax exemption, I do not think you can blame them for factoring it in before they got it - that seems to be rather standard practice to me, and would be absolutely no problem if they did not cock up the subsequent application.
The fact that they did mess that up is, indeed, failing at financial competence and a penalty for that is fair (the fact that they already had a 'penalty' of 1.4M in higher tax expenses is irrelevant there - it's their own fault).
But, considering that they were eligible for the tax break (hence it's not outrageous they factored it in) and did not gain an active development gain over competition from this, a financial penalty seems to be a fair solution to me - and that's what they got. Hence, I consider the penalty to be fair.
Note, this considers the tax break part - not the other 0.4M.

The official statement by the FIA for AMR said that AMR did not gain and advantage. In the same statement by the FIA for RBR, that same line was left out. By omission, the FIA are saying, RBR gained and advantage. FACT

[MadMax]

Interesting read

https://archive.ph/OghOj#selection-881.0-900.0

Spot on. Nail hit squarely on the head. Etc..

Nice to see a journalist with the courage to say it as it is.

The article will, no doubt, be decried as being a further example of bias from the British media.

[SiLo]

It seems to me that this R&D tax credit thing is remarkably complex and I don’t think we have seen the whole story. As such any interpretation from what we do know now as to whether and what RB are entitled to will be dependant on assumptions and likely bias. No doubt there are others here who can enlighten me, and others, about how these things work.

Some info:

The criteria

The tax credit qualification criteria are set out here https://www.gov.uk/guidance/corporatio ... -rd-relief. Qualifying activities look a bit like patent rules, novel and non-obvious.

Advances in the field
Your project must aim to create an advance in the overall field, not just for your business. This means an advance cannot just be an existing technology that has been used for the first time in your sector.

The process, product or service can still be an advance if it’s been developed by another company but is not publicly known or available.

Show that a professional in the field could not work this out
You should explain why a professional could not easily work out your advance.

You can do this by showing that other attempts to find a solution had failed.

You can also show that the people working on your project are professionals in that field and get them to explain the uncertainties involved.

I wonder what non-obvious advance in what field RB claimed they had made that isn’t just for their business?

The finances

The amount of RB’s claim, £1,431,438 equates to an R&D spend of £11m. (The credit relief is 13% of the outlay).

A complication is that we have two financial bodies that need to be satisfied in two different reporting periods.

To qualify for the cost cap, activities must take place in the period January to December 2021, and to qualify for the tax credit, between April 2021 and March 2022. So for the qualifying activity, £11m spend must have taken place between April and December.

As I understand it the Cost Cap refers to actual, hindsight, costs. I assume that if you are claiming a credit against these costs it can only be done in hindsight, I.e. after the December 31. I don’t know how the tax system works. Can one claim before the work is done? Or before the end of the tax year in which the credit will be reconciled?

It has been claimed that RB might have included this credit but forgot to. Does this mean that they could have made a claim against the expectation that they would later file for the tax credit after the CC documentation was submitted? Is this why it is described as notional?

Finally, has the credit been allowed? We can’t see it in Red Bull’s accounts because they haven’t, as yet, been filed.

I assume the FIA referred to this credit as mitigation to justify the extent of the penalty that was negotiated and agreed by Red Bull. What if it’s not allowed? What if HMRC decide that the work didn’t qualify?

This is exactly what I was getting at. How can RB categorically say whatever they are developing is not just for their business? Especially when F1 is so secretive, and they are not an OEM. And if HMRC deny the grant on the grounds that RB do not meet the tax credit criteria, I want to know if other teams applied for it and either received it or got rejected. OEMs like Ferrari, Mercedes and Mclaren might be able to if those developments are shared with the automotive industry, but at its core it feels like a grant that no F1 team should be getting near. Unless its development of software that is to be released publicly, but we know that won't happen.