What happens in an HMRC R&D tax credit enquiry?

An HMRC R&D tax enquiry can interrupt the claiming process for a business. As HM Revenue and Customs continues to focus on compliance, more companies are being asked to provide further information to support their R&D tax claims. 

An enquiry from HMRC may feel intimidating at first. In practice, it forms part of HMRC’s compliance process to confirm that an R&D claim meets the legislative requirements. It is also carried out to ensure that qualifying activities and costs have been claimed correctly. 

Understanding how the R&D tax enquiry process works can help businesses respond clearly, manage expectations, and progress the claim with fewer delays.

What is an R&D tax enquiry?

An R&D tax enquiry also known as an R&D tax compliance check, is a formal review carried out by HMRC. The purpose of the HMRC R&D enquiry is to review the claim in more detail and confirm that it aligns with the relevant legislation and HMRC guidance. HMRC may open an enquiry into a claim for a variety of reasons. 

These can include:

• The size or complexity of the claim.
• The nature of the qualifying R&D activities.
• Questions relating to cost eligibility.
• Routine compliance checks.

An R&D tax enquiry does not automatically indicate that HMRC considers a claim to be incorrect. Claims may be selected for review as part of routine compliance activity, including where HMRC requires further clarification or evidence.

Why does HMRC open an R&D tax enquiry?

HMRC has a responsibility to ensure that R&D tax relief is claimed correctly and in line with the legislation. An enquiry may be opened to clarify the technical aspects of a project, to understand the scientific or technological uncertainties being addressed, or to review the costs included in the R&D claim. 

In some cases, an enquiry is part of HMRC’s routine compliance process rather than highlighting any specific concerns. HMRC may also identify enquiry focus points where further explanation or supporting evidence may be required to strengthen the R&D claim.

What is the short-term impact of an R&D tax enquiry?

One of the immediate effects of an R&D tax enquiry is a delay in payment. If a Company Tax Return is under enquiry and includes a repayment, HMRC may pause processing the claim. This could delay the release of the R&D tax credit and any related Corporation Tax repayment until the enquiry has been resolved.

The time of the delay will vary depending on:

• The complexity of the HMRC R&D enquiry.
• How many questions HMRC raises.
• How quickly the requested information is provided.

Following closure of the enquiry, HMRC will resume processing and finalise the claim.

What happens if the R&D tax credit has already been paid?

If HMRC opens an R&D tax credit enquiry after the credit has been paid, it should be treated as provisional. Following the review, HMRC may conclude that all or part of the claim is unsupported. In that case, HMRC can amend the return and the disputed amount will need to be repaid.

This creates uncertainty rather than an immediate delay, so it’s sensible not to commit the full value of the credit until the enquiry is resolved.

Once the enquiry is complete, HMRC will either confirm the claim or issue an amendment setting out any adjustment and repayment due.

How the R&D tax enquiry process works

When an enquiry is opened, HMRC will assign a compliance inspector to review the R&D claim and request additional details where needed.

HMRC compliance checks and enquiry focus points

The HMRC compliance inspector usually outlines the specific areas of focus for the enquiry.

These may relate to whether:

• The work qualifies as Research and Development for tax purposes.
• The scientific or technological uncertainties go beyond existing baseline knowledge and could not be readily resolved by a competent professional.
• Eligible R&D costs under the relevant R&D scheme, for example under the SME scheme or the RDEC scheme, depending on the company’s size and circumstances.

Review of qualifying R&D activities

HMRC will assess whether the activities described in the claim meet the definition of qualifying R&D activities. This will include:

• Reviewing the scientific or technological uncertainties faced, while considering the baseline knowledge available at the time the R&D work was undertaken.
• How these uncertainties were addressed.
• Whether the work sought to achieve an advancement.

Review of R&D tax claim costs

As well as the technical review, HMRC will also examine the expenditure included in the R&D claim. This may involve reviewing staff costs, subcontractor costs, consumables, and any other costs to ensure that only qualifying expenditure has been included in the claim. 

The business will usually be asked to provide further information by letter or email. This may involve supplying supporting documentation or clarification on specific points in the claim. From internal reports to contemporaneous project records, HMRC may request further evidence to support the expenditure claimed. 

How to respond to an R&D tax enquiry

Responding promptly and accurately to HMRC’s questions is key to managing an R&D tax enquiry. Clear, consistent, and well organised documentation can help reduce the risk of miscommunication or prolonged reviews.

Reaching agreement during an R&D enquiry

If the inspector considers the information provided to be insufficient, it may still be possible to agree on specific areas for further review. This can include refining the technical narrative or amending specific costs that do not fully meet the qualifying criteria.

Further HMRC action

If an agreement cannot be reached, HMRC may continue the R&D enquiry or decide to take further action. While this is a less common scenario, it highlights the importance of clear and accurate communication throughout the enquiry process.

How long does an R&D tax enquiry take?

There is no fixed timeline for an R&D tax credit enquiry. Some enquiries are resolved within a few months. Others may take longer depending on complexity and the level of detail required. Well-prepared documentation and timely responses can help reduce delays.

How to reduce the risk of an R&D tax enquiry

Although enquiries cannot always be avoided, companies can reduce risks by maintaining clear technical documentation, keeping detailed financial records, and ensuring Research and Development tax claims correspond to the qualifying work undertaken. 

Preparing an R&D tax claim that is well supported can make a significant difference to how smoothly an enquiry is handled by HMRC during the review process.

Key summary

An R&D tax enquiry is a structured compliance process used to confirm that R&D tax credit claims meet HMRC’s requirements. While the review can delay payment in the short term, many enquiries are resolved once HMRC has received all of the information needed to verify the claim.

Understanding how an R&D tax enquiry works, and communicating clearly with HMRC, helps businesses navigate the process with greater clarity and fewer delays.

At Alexander Clifford, we support companies through the R&D tax relief process, from assessing qualifying activity to preparing and submitting compliant claims. With over 100 5-star reviews, our team of experts manages the technical and financial requirements of the R&D claim, helping businesses engage with HMRC clearly and effectively. Please do not hesitate to contact us regarding any questions or concerns you may have.