HMRC tests R&D claims by opening an enquiry into the Company Tax Return, which it calls a compliance check. The proportion of claims checked rose sharply after 2022, and HMRC's approach has been to ask detailed questions about the projects and the costs and to speak to the people who did the work. This page covers how a check starts, what is asked, how to respond and what can follow. The compliance checks page goes into HMRC's current process in more detail.
How reviews start
For most companies, HMRC can open an enquiry within 12 months of the date the return was delivered; for members of large groups, within 12 months of the filing date. Different time limits apply to late returns. An amended return opens a further window for enquiry into the amendment. Outside those windows HMRC can still raise a discovery assessment where it discovers that tax has been under-assessed, within 4 years, or 6 years for careless and 20 years for deliberate behaviour.
Selection is a matter for HMRC. Its published approach is risk-based: the content of the additional information form, the agent named on it, the sector, the size of the claim relative to the company, and whether the company has claimed before all feed into it. Some checks are opened before a payable credit is paid; others after.
What is requested
| Area | Typical questions | What satisfies them |
|---|---|---|
| The projects | For each project: the field, the baseline, the advance sought, the uncertainties, why a competent professional could not readily resolve them, and what was done | The project start note and the technical records, in the competent professional's own words |
| The competent professional | Who they are, their qualifications and experience, and their involvement in the claim | A short CV and the records they kept |
| Staffing costs | Which employees, what they did, how the apportionment was made, with payroll evidence | Time records, job descriptions, payroll and pension records |
| Subcontractors and externally provided workers | Contracts, who decided to undertake the R&D, where the work was done, connection, the 65% calculation | Contracts dated before the work, invoices, location evidence |
| Consumables, software, data and cloud | Invoices, how the items were used in the R&D, any incorporated in products sold | Purchase records coded to projects |
| The scheme and computation | SME status, R&D intensity for ERIS, the PAYE and National Insurance cap, the credit steps | Group structure, the computation and the payroll figures behind the cap |
| The agent | Who prepared the claim and on what terms | The engagement letter |
HMRC commonly asks for a call or meeting with the competent professional, and may ask to see the technical records on screen rather than as extracts. Answers are given in writing within the time the notice sets, typically 30 days, with extensions available on request.
Responding to a review
- Answer each question, in order. Caseworkers work from their list; a reorganised narrative in place of answers slows the check and reads as evasive.
- Put the competent professional forward. They should explain the uncertainty and the work in their own words. An agent can attend but should not speak for them.
- Reconcile the numbers first. Show the staffing costs to payroll, the subcontractor costs to contracts and invoices, and the totals to the additional information form.
- Concede what cannot be evidenced. Withdraw a project or a cost in writing rather than defend it; the rest of the claim is more credible for it, and a voluntary correction reduces any penalty.
- Keep the file. Every notice, letter, call note and response, in case the matter goes to review or tribunal.
Outcomes, penalties and appeals
Closure. The check ends with a closure notice that either accepts the claim or amends the return. An amended claim means additional tax or a reduced payable credit, with interest from the date the tax was due.
Penalties. Where a claim contains an inaccuracy that was careless, deliberate, or deliberate and concealed, a penalty of up to 30%, 70% or 100% of the potential lost revenue applies, reduced for disclosure and cooperation. No penalty is due where the company took reasonable care, and HMRC's guidance treats reliance on an agent as reasonable care only if the company checked the claim it was signing. HMRC has also used its power to reject claims it considers to be made without a sound basis and to charge penalties on advisers in some cases.
Disputes. A company that disagrees with a closure notice or assessment can appeal within 30 days, ask for an internal review by an HMRC officer not involved in the check, use alternative dispute resolution, and ultimately take the matter to the First-tier Tribunal (Tax Chamber). Tribunal decisions on R&D have turned on the same points as enquiries: whether the uncertainty was real to a competent professional, whether the records support the apportionments, and whether contracted work was the claimant's R&D or the customer's.
Illustrative example
Illustrative example. Lindhurst Medical, a hypothetical company, receives an enquiry notice into a £150,000 expenditure credit claim across four projects. For three projects its technical director explains the uncertainties on a call and the records match the costs; HMRC accepts them. For one, a laboratory information system, the records show configuration of a purchased product; Lindhurst withdraws it, reducing the credit to £120,000. Because the company kept records and corrected the claim without being pushed, HMRC closes the check with no penalty. Had the whole claim been built on a year-end narrative and estimates, HMRC could have amended it further and charged a careless penalty on the difference.
Related pages
Official sources
Educational content only, not tax advice. See the disclaimer.