R&D tax credit investigation

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• FWJ takeaway

An HMRC enquiry into an R&D tax credit claim can be disruptive and time consuming. HMRC may question whether your project meets the statutory definition of research and development, whether your evidence is sufficient or whether the costs claimed are accurate. Responding clearly and correctly is essential to protect your position and avoid repayment demands, interest or penalties.

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At a glance

HMRC is conducting more R&D enquiries than ever before. Many relate to eligibility concerns, missing technical evidence or claims submitted by unregulated advisers. A compliance check can lead to repayment demands or penalties if not handled properly. We help businesses prepare evidence, respond to information requests and challenge HMRC’s findings where appropriate.

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What is an HMRC R&D tax credit investigation?

An R&D tax credit investigation is a formal enquiry into a company’s R&D claim. HMRC uses compliance checks to determine whether the work falls within the statutory definition of research and development and whether the costs claimed are accurate. Enquiries may involve both financial and technical questions.

The investigation may focus on the project description, the scientific or technological uncertainty involved, the competent professional leading the work and the supporting evidence. HMRC will ask detailed questions to understand the nature of the activities and the basis for the claim.

Summary: An R&D investigation examines whether your project qualifies for relief and whether your claim is accurate.

Why has HMRC opened an enquiry into my R&D claim?

HMRC opens enquiries for several reasons. Common triggers include:

• concerns that the project may not meet the definition of R&D
• insufficient technical evidence
• claims prepared by unregulated advisers
• unusually high claim values
• errors or inconsistencies in the tax return
• claims in sectors considered at higher risk

HMRC may also open an enquiry if it believes the project did not involve scientific or technological uncertainty or if the company cannot show how costs relate to the qualifying activity.

Summary: HMRC opens enquiries where it believes more information is needed to confirm the claim is valid.

What does HMRC ask for during an R&D tax credit investigation?

During an enquiry, HMRC may request:

• a detailed explanation of the project
• evidence of scientific or technological uncertainty
• descriptions of how the uncertainty was addressed
• technical reports or supporting documents
• records of staff time and qualifying costs
• evidence that a competent professional oversaw the work

HMRC will expect clear, factual explanations supported by documentation. Unsupported claims are often challenged.

Summary: HMRC expects detailed technical and financial evidence to support the claim.

What are the risks if HMRC does not accept your R&D claim?

If HMRC does not accept your claim, it may reduce or remove the relief. This can lead to repayment of credits already received. HMRC may also charge interest on the overclaimed amount. In some cases, penalties may be applied depending on the quality of the disclosure and HMRC’s assessment of behaviour.

Losing a claim can have a significant impact on cash flow, especially where credits have been used to fund ongoing development.

Summary: Unsuccessful claims may lead to repayment, interest and penalties.

How should you respond to an R&D compliance check?

The best starting point is a full internal review of the claim. This includes examining the project description, reviewing the technical evidence and ensuring costs are accurately allocated. You should check that the project meets the statutory definition of R&D and that the claim can be supported with documentation.

It is important to respond clearly and promptly to HMRC. Confused or incomplete explanations can prolong the enquiry and increase the risk of adjustments.

Summary: A structured and well evidenced response gives you the best chance of a positive outcome.

Can HMRC claw back previously paid R&D tax credits?

Yes. If HMRC concludes that the claim is incorrect, it can amend the return and require repayment of any credits already paid. HMRC may also charge interest and consider penalties if it believes the error was careless or deliberate.

Repayment demands can be significant and may affect the company’s ability to fund ongoing operations.

Summary: HMRC can recover overclaimed credits and may charge interest or penalties.

Can you appeal an HMRC R&D decision or penalty?

You can request an internal review of HMRC’s decision or appeal to the First tier Tribunal. An appeal may be appropriate if you believe HMRC has misunderstood the project, misapplied the rules or overlooked key evidence.

Appeals require clear, well organised documentation. In some cases, expert technical evidence may be necessary to demonstrate that the project meets the definition of research and development.

Summary: You can appeal HMRC’s findings, but success depends on the strength of your evidence.

What evidence does HMRC expect to support an R&D claim?

HMRC expects:

• clear descriptions of the scientific or technological uncertainty
• explanations of how you attempted to resolve that uncertainty
• records of experiments, testing or development activities
• timesheets or allocation records for staff time
• cost breakdowns linked to the project
• involvement of a competent professional with relevant expertise

Strong evidence helps HMRC understand the technical merit of the project and reduces the likelihood of challenge.

Summary: Clear technical and financial evidence is essential to support any R&D claim.

How can you reduce penalties in an R&D dispute?

Penalties depend on HMRC’s assessment of behaviour. You can reduce penalties by:

• providing accurate and complete information
• cooperating with HMRC during the enquiry
• correcting errors voluntarily
• demonstrating that any inaccuracies were not deliberate

Full and prompt disclosure often leads to lower penalties and can help resolve the enquiry more quickly.

Summary: Cooperation and accurate disclosure are key to minimising penalties.

How does FWJ help companies being investigated over R&D claims?

We help clients understand the basis of the enquiry, gather technical evidence and prepare detailed responses. We review the claim, identify areas of risk and advise on how to resolve the dispute. Where necessary, we help challenge HMRC’s decision or negotiate an outcome that protects the business.

Summary: FWJ provides clear, practical support throughout the R&D investigation process.

Our brilliant R&D tax credit defence team

Our firm has a huge experience in dealing with and defending R&D tax credit claims.

• Andy Lynch. Andy is an expert on a wide range of HMRC claims and before joining FWJ, he spent 18 years at HM Customs & Excise in their National Investigation Service. His experience is unrivalled in all types of HMRC claims including HMRC investigation defence, VAT claims, R&D tax credit defence, Account Freezing Orders, Tax Disclosure, Code of Practice 8 & 9 claims, winding up petition defence and much more.
• Stephen Downie is a partner with significant tax experience and is also a qualified accountant and previously spent time working at the Insolvency Service.
• Anita Sharma. Anita is a Senior Associate specialising in tax litigation and financial disputes with HMRC. She advises high-net-worth individuals and major commercial clients on appeals against HMRC decisions, complex tax assessments, and enforcement proceedings. Anita has secured interim relief following HMRC revocations to keep clients trading during appeals and is known for achieving practical, results-focused outcomes in high-value disputes.
• Connor Coombs. Connor is a Paralegal in the tax team assisting on a broad range of HMRC investigation and defence matters. He supports clients with Code of Practice 8 and 9 investigations, time-to-pay arrangements, HMRC statutory demands and R&D tax credit disputes. Connor also helps prepare detailed evidence and submissions for use in appeals and settlement negotiations, ensuring cases are presented clearly and effectively.

Simply outstanding service!
From the initial enquiry to the final submission, I have been thoroughly impressed with the advice and communication, depth of knowledge and turnaround time from this firm. Specific thanks must go to Phoebe Pexton for her attention to detail, care and dedication throughout.

A client facing an R&D tax credit tax claim from HMRC