HMRC calls an enquiry into a return a compliance check, and since 2022 it has run a far larger programme of checks on R&D claims than before, using dedicated teams and a standard process. The reviews and audits page covers the law on enquiries, penalties and appeals; this page describes what the current process looks like from the company's side and how to prepare a claim that will withstand it.
What it is
A compliance check is HMRC's enquiry into whether the R&D claim is correct. It is opened by a letter giving notice of enquiry into the Company Tax Return, usually accompanied by a set of questions about the projects and costs and a deadline for a response. HMRC significantly increased its R&D compliance activity from 2022.
| Stage | What happens | Typical timing |
|---|---|---|
| Opening letter | Notice of enquiry under Finance Act 1998 Schedule 18, with questions on the projects, the competent professional, the cost categories and the agent | Within 12 months of filing, often before a payable credit is paid |
| Response | Written answers with supporting records | 30 days, extendable on request |
| Follow-up | Further questions, a request to speak to the competent professional, sometimes a meeting | Weeks to months |
| HMRC's view | A letter setting out which projects and costs HMRC accepts and rejects, with reasons | After the responses are considered |
| Closure | Closure notice accepting or amending the claim; penalty decision where relevant | Several months in total; longer where disputed |
| Dispute | Appeal within 30 days; statutory review; alternative dispute resolution; First-tier Tribunal | Months to a year or more |
Who it applies to
Any company that has claimed. HMRC selects claims for compliance checks on a risk basis, using information including the additional information form. HMRC also applies a mandatory random enquiry programme to estimate error rates, so some fully compliant claims are checked at random.
How it works
The standard questions. HMRC's opening letters ask, for each project, why it is R&D under the guidelines: the field, the baseline, the advance, the uncertainties, why they were not readily deducible by a competent professional, and the work done. They ask who the competent professional is and for evidence of their standing. They ask for the breakdown of each cost category with supporting records, and for contracts where work was contracted out or workers provided. And they ask about the agent and the basis on which the claim was prepared.
Speaking to the competent professional. HMRC has said it expects to hear from the person with the technical knowledge, and it draws adverse inferences where only an agent engages. Prepare the competent professional to explain the uncertainty in their own words, with the records to hand.
Timescales and tone. Checks are conducted in writing, by caseworkers who are not technical specialists, applying the guidelines. Answers should be plain, specific and organised by question. Where HMRC's view letter misunderstands the technology, the correction should come from the competent professional with reference to the records.
Outcomes. HMRC may accept the claim, remove projects or costs, or reject the claim. Where a payable credit has already been paid, the amended amount is recovered with interest. Penalties for careless inaccuracy are assessed on the potential lost revenue and reduced for the quality of disclosure. HMRC has also removed claims it considers to have been made without reasonable basis using its power to correct obvious errors, which can be rejected by the company within a time limit.
Worked example
Illustrative example. Ravenscar Software, a hypothetical company, files a claim with a £90,000 expenditure credit across three projects and receives a compliance check letter six weeks later. Its chief technology officer answers the project questions from the project start notes and the sprint records; finance provides the staff apportionment from the timesheet system and the payroll; the agent's engagement letter is supplied. HMRC asks to speak to the chief technology officer, who explains why the chosen approach to a real-time data problem was not readily deducible and what was tried. HMRC accepts two projects in full and the third in part, because the records show the uncertainty was resolved in month four while the claim ran to month nine. The credit is amended to £78,000; no penalty is charged because the company took reasonable care and the records were contemporaneous.
Common questions
Will HMRC pay the credit while a check is open? Usually not; the check is often opened before payment.
How long do we have to respond? Typically 30 days from the letter, with extensions on request; silence leads HMRC to decide on the information it has.
Should our adviser handle it? An adviser can manage the process, but HMRC wants the competent professional's account. Both should be involved.
Can we withdraw the claim to end the check? Withdrawing the claim removes the tax at stake but does not prevent a penalty if the claim was careless.
Related pages
Official sources
Educational content only, not tax advice. See the disclaimer.