HMRC R&D Enquiries & Compliance

Key facts

HMRC opened a dedicated R&D compliance unit in 2023, significantly increasing the number of enquiries.
An enquiry does not mean your claim is wrong — HMRC may simply want more information.
You typically have 30 days to respond to an HMRC information notice.
Your technical report is the most important document in defending your claim.
If HMRC reduces or rejects your claim, you have the right to appeal.

HMRC’s Increased Scrutiny of R&D Claims

HMRC has significantly increased its compliance activity around R&D tax credits in recent years. This follows concerns about the volume of inaccurate and fraudulent claims, particularly from companies using contingency-fee advisers who overstate qualifying activities.^[1]

Key changes include:

A dedicated R&D compliance team established within HMRC
The mandatory Additional Information Form (since August 2023) giving HMRC upfront data on claims
Pre-notification requirements for new claimants
Greater use of data analytics to identify unusual or high-risk claims

What Triggers an Enquiry?

While HMRC does not publish specific criteria, the following factors are known to increase the likelihood of an enquiry:^[2]

Risk Factor	Why It Raises a Flag
First-time claim	HMRC reviews new claimants more closely
Claim prepared by a contingency-fee adviser	HMRC has found that some contingency advisers overstate claims
High R&D-to-turnover ratio	Unusually high claims relative to company size may indicate over-claiming
Vague project descriptions on the AIF	Generic or boilerplate descriptions suggest lack of genuine R&D
Claim for an entire workforce	Claiming 100% of all staff time as R&D is rarely credible
Significant year-on-year increase	A sudden jump in claim size without explanation may raise questions

The Enquiry Process

If HMRC opens an enquiry, the process typically follows these stages:^[2]

Information notice: HMRC writes to you requesting specific documents and information. You usually have 30 days to respond.
Review: HMRC reviews your response, often involving a specialist R&D inspector who assesses the technical content.
Questions and dialogue: HMRC may ask follow-up questions or request a meeting (in person or by phone) to discuss the qualifying activities.
Decision: HMRC either accepts the claim, proposes amendments (reducing the claim), or rejects it entirely.
Settlement or appeal: If you disagree with HMRC’s decision, you can negotiate or formally appeal.

Important: An enquiry is not an accusation of fraud. Many enquiries are routine compliance checks, and a significant proportion result in the claim being accepted in full or with minor adjustments. The key is to respond thoroughly and on time.

How to Respond to an Enquiry

When responding to an HMRC R&D enquiry, provide:

Technical report: Your detailed narrative for each qualifying project, covering advance, uncertainty, and approach
Cost calculations: Clear breakdown of qualifying expenditure by project and cost category
Time records: Timesheets or estimates showing how staff time was apportioned to R&D
Project evidence: Design documents, test results, meeting notes, and any contemporaneous records
Competent professional statement: Confirmation from a qualified person that the uncertainty was genuine

Tip: Respond to every question HMRC asks, and provide more detail rather than less. Incomplete responses lead to further questions and delay the process. If you need more time, request an extension before the deadline — HMRC will usually grant reasonable extensions.

Penalties and Consequences

If HMRC determines that a claim was incorrect, the consequences depend on the reason for the error:^[2]

Error Type	Penalty Range
Reasonable care taken (genuine mistake)	No penalty — the claim is simply corrected
Careless error (lack of reasonable care)	0%–30% of the overstated credit
Deliberate error (knowingly incorrect)	20%–70% of the overstated credit
Deliberate and concealed	30%–100% of the overstated credit

Having a well-prepared technical report and accurate cost records demonstrates “reasonable care,” which is the best protection against penalties even if some aspects of the claim are ultimately rejected.

Appealing HMRC’s Decision

If you disagree with HMRC’s decision to amend or reject your claim, you have the right to:

Request a statutory review: An independent HMRC officer reviews the decision
Appeal to the First-tier Tribunal: An independent tax tribunal hears the case and makes a binding decision
Negotiate a settlement: Reach a compromise with HMRC before formal proceedings

Appeals must typically be made within 30 days of HMRC’s decision letter.

Frequently Asked Questions

How likely is it that my claim will be enquired into?

HMRC has stated that it intends to review a much higher proportion of R&D claims than in previous years. First-time claims, claims with unusual cost profiles, claims prepared by contingency-fee advisers, and high-value claims are more likely to be selected. However, many claims are processed without enquiry.

What should I do if I receive an enquiry letter?

Do not panic. Read the letter carefully and note the deadline for responding (typically 30 days). Gather your technical report, cost calculations, timesheets, and project records. If you have an accountant or R&D adviser, involve them immediately. Respond thoroughly and on time.

Can HMRC charge penalties on R&D claims?

Yes. If HMRC determines that a claim was carelessly or deliberately incorrect, they can charge penalties of up to 30% (careless) or 100% (deliberate) of the overstated tax credit. Penalties are less likely if you can demonstrate that the claim was prepared with reasonable care and supported by a technical report.

How long does an enquiry take?

R&D enquiries can take anywhere from a few weeks (for simple information requests) to over a year (for complex or contested claims). The duration depends on the complexity of your claim, how quickly you respond, and whether HMRC needs to involve a specialist inspector.

Sources

Corporation Tax: Research and Development (R&D) relief — GOV.UK
HMRC compliance checks: what happens during and after a check — GOV.UK
CIRD80000 – R&D tax relief: overview — HMRC