Why HMRC enquiries into R&D tax relief are rising and what CFOs must do to stay safe

Why HMRC enquiries into R&D tax relief are rising and what CFOs must do to stay safe

HMRC scrutiny of R&D tax relief has intensified. A merged regime for newer periods, more mandatory information, and increased use of automation have raised the bar. Finance leaders need claims that are audit ready, consistent, and supported by evidence that stands up.

Why enquiries are rising

Policy reset and fraud reduction. Government has tightened rules to reduce error and fraud. This includes clearer definitions, closer policing of borderline activity, and a stronger expectation that claims reflect genuine technological uncertainty and a systematic approach.

More data up front. The Additional Information Form requires structured narratives, named contacts, and detailed cost breakdowns. This improves triage, but exposes inconsistencies quickly.

Merged scheme complexity. For periods beginning on or after 1 April 2024, the UK moved to a merged R&D expenditure credit with a separate route for R&D-intensive loss makers. Mixed portfolios now need period-correct treatment across project and cost categories.

Automation in triage. Automation accelerates selection for review and standardises enquiries. It does not replace humans, but it does make weak or generic evidence easier to detect at scale.

Agent and sector patterns. HMRC is looking closely at agent behaviour and sectors with higher historic error rates, such as certain software claims. Templated language and recycled narratives are common triggers for questions.

Treatment of complex costs. Contracted-out R&D, subcontractors, overseas activity, and grant interactions remain frequent sources of error. Small mistakes in these areas can pull an otherwise sound claim into enquiry.

Common triggers finance teams can control

• Claims written in generic language that could apply to any project

• Gaps between payroll, timesheets and the claimed staff effort

• Large subcontractor or overseas components with thin evidence of activity

• Inconsistent treatment across periods, or misalignment with the company’s SIC code and activity

• Advisors submitting multiple claims with near-identical narratives

What “good” looks like for an enquiry-ready claim

Period-correct mapping. Identify which rules apply to each accounting period and project. Document why the chosen treatment is correct.

A clean technical story. Explain the baseline knowledge, the specific technological uncertainties, the systematic work carried out, and the results. Avoid marketing language. Be precise about what did not work and why.

Cost traceability by named individual. Reconcile qualifying time to payroll and timesheets. Tie subcontractor and supplier costs to statements of work and invoices. Ensure CT600 entries mirror your workings.

Consistent structure and terminology. Use a standard template that mirrors HMRC expectations, but ensure each project narrative is unique to the facts.

An enquiry pack prepared in advance. Maintain experiment logs, decision records, sampling logic, governance sign-offs and version control. This shortens response time and reduces disruption.

Independent red-team review. Challenge eligibility and edge cases before filing. Stress test subcontractor, overseas, and grant interactions. Fix weak points early.

CFO playbook - practical actions this quarter

1. Run a readiness audit. Sample recent and upcoming claims. Check for period-correct treatment, cost reconciliations, and gaps against the Additional Information Form.

2. Tighten evidence workflows. Standardise how project teams capture uncertainty, iterations and outcomes. Introduce a single source of truth for time, suppliers and calculations.

3. Segment risk. Flag higher-risk projects, for example heavy subcontractor use, overseas work, or first-time claims in a sector HMRC scrutinises. Apply deeper technical review to these files.

4. Build a 24-hour enquiry pack. Assemble documents now so you can respond within ten working days without scrambling.

5. Review the adviser model. Ask for advisor error rates, enquiry rates and QA processes. Require a second-pair review on eligibility and calculations before submission.

6. Brief the Board. Explain that scrutiny will remain high. Set expectations on timelines and the value of preparation.

Signals of automated flagging, and how to respond

Potential flag

Why it matters

What to prepare

Recycled narratives across multiple claims

Looks templated or agent driven

Project-specific uncertainties, iteration logs, test evidence, failure learning

SIC code with historic error rates

Attracts closer review

Deeper uncertainty analysis, reference to sector benchmarks or literature

Headcount and timesheets that do not reconcile

Easy data check at scale

Named staff schedules, payroll tie-outs, management approvals

Large subcontractor or overseas costs

Often mis-treated

Contracts, statements of work, role of each party, period-correct treatment notes

Sudden spike in claims or adviser changes

Pattern detection risk

Governance notes explaining volume changes, evidence of strengthened QA

What to say to the Board

• Checks will remain high. Automation and structured data improve triage. They do not reduce scrutiny.

• Our defence is preparation. Enquiry-ready files reduce the likelihood of challenge and shorten resolution times.

• Compliance is period specific. Mixed timing across projects requires disciplined mapping and documentation.

Expert source

FI Group advises companies on R&D tax relief and enquiry defence. According to the firm, only 3% of its client claims entered enquiry over the last cycle, against an industry picture of around 18%. The firm attributes this to evidence-first drafting, pre-submission quality assurance, and preparing an enquiry pack before filing.

“Clear technological uncertainty, a systematic approach and traceable costs still decide outcomes. The presentation can be modern, but the fundamentals have not changed,” says a Senior R&D Tax Consultant at FI Group UK.