In this Blog, our Tax Partner ex HMRC investigation expert, Andy Lynch, looks at recent HMRC activity on R&D claims and claims against advisers.
The new landscape – HMRC is toughening up
HMRC is taking a far tougher approach to R&D tax relief claims. Increased compliance checks, wider use of penalties, and closer scrutiny of adviser-led submissions mean many companies are now facing assessments years after claims were made. In most cases, the immediate financial and legal risk sits with the company and its directors, not the adviser who prepared the claim.
In this article, Andy Lynch explains why HMRC is focusing on R&D claims, where liability really lies, and what businesses should do if an investigation is opened.
Why is HMRC increasing scrutiny of R&D tax credit claims?
R&D tax relief has become one of HMRC’s highest-risk reliefs. The volume of claims has increased sharply in recent years, alongside the growth of specialist R&D advisers operating on a contingent fee basis.
- HMRC has been clear that it believes a significant proportion of claims are overstated or do not meet the statutory definition of qualifying R&D.
- Common issues include claims for routine software development, inflated staff costs, and projects that lack genuine technological uncertainty.
As a result, HMRC now approaches R&D claims with a compliance mindset. Claims that may once have passed without challenge are now being reviewed in detail, often several years after submission. HMRC now treats R&D tax relief as a compliance risk area, not a low-risk incentive.
Who is legally responsible when an R&D claim is wrong?
A common misconception is that responsibility rests with the adviser who prepared the claim. In reality, HMRC’s contractual relationship is with the company, not the adviser.
- The company is legally responsible for the accuracy of its tax return, and directors are responsible for ensuring that reasonable care is taken.
- HMRC will therefore pursue the company for any overclaimed relief, interest, and penalties, regardless of whether the claim was adviser-led.
That position can come as a shock to directors who relied heavily on specialist advisers and were given strong assurances about eligibility. From HMRC’s perspective, reliance on an adviser does not automatically remove liability.
FWJ Takeaway: Liability for incorrect R&D claims usually sits with the company and its directors, not the adviser.
What penalties and risks can arise from disputed R&D claims?
Where HMRC disallows an R&D claim, it will usually seek repayment of the relief claimed, together with interest. Penalties may also be imposed, depending on HMRC’s view of the behaviour involved.
- If HMRC considers the error to be careless, penalties may be mitigated by cooperation and disclosure.
- However, where HMRC alleges deliberate behaviour, the financial exposure increases significantly.
- In serious cases, HMRC may escalate matters into a civil fraud investigation, including the use of Code of Practice 9.
There can also be wider consequences. Admissions of deliberate behaviour can affect director standing, future HMRC interactions, and, in extreme cases, raise director disqualification risk.
Disputed R&D tax credit investigations can quickly escalate from repayment into penalties and fraud allegations if not handled carefully.
Can you take action against a rogue R&D adviser?
Where an adviser has acted negligently, recovery may be possible through a professional negligence claim. This may include situations where advisers failed to explain eligibility properly, overstated claims, or used generic justifications that were not tailored to the business.
However, these claims are separate from HMRC’s investigation and do not stop HMRC pursuing the company in the meantime. Timing also matters. Evidence, engagement letters, and contemporaneous advice will all be critical.
Directors should also be cautious about assuming negligence too quickly. HMRC disagreement does not automatically mean an adviser was negligent, and careful analysis is required.
Claims against advisers may be possible, but they do not remove immediate HMRC exposure.
What should you do if HMRC opens an R&D investigation?
The first priority is to understand the scope and tone of HMRC’s enquiry. Early correspondence often gives clues as to whether HMRC views the issue as careless error or something more serious.
- Specialist advice is important at an early stage. R&D tax credit investigations sit at the intersection of tax law, evidence, and risk management.
- Poorly framed responses can inadvertently escalate matters or create admissions that are difficult to unwind. Our R&D tax credit investigations team can help you mitigate the effects of an investigation quickly and cost effectively.
With the right approach, many R&D disputes can be resolved without penalties or further escalation. Delay, inconsistency, or over-reliance on the original adviser often makes matters worse.
Final thoughts
HMRC’s crackdown on R&D tax relief and an increase in R&D tax credit investigations is reshaping the risk landscape for businesses that claimed in good faith on adviser advice. While advisers may have played a role, HMRC will look first to the company and its directors.
Understanding where responsibility lies and acting quickly when an investigation begins can make a significant difference to the outcome.
