Scrutiny of R&D tax credit claims has intensified recently, with HMRC reviewing 20% of all R&D claims in 2024, which is 5 times more than in 2022. In this new claims landscape, being organised, prepared, and compliant is key to mastering R&D audit readiness for both accountants and claimants.
The reason for this?
Fraud and error accounted for 16.7% of all R&D claims submitted in 2020-21, totalling £1.13bn so HMRC had to take action to protect the public purse.
To combat this, HMRC introduced an anti-abuse unit, added 300 staff to the small business compliance team and now has around 500 staff focused on identifying errors and fraud in the scheme.
They also introduced the Additional Information Form (AIF) in 2023 which requires companies to provide detailed breakdowns of their R&D projects, costs and justifications upfront. And launched the new Mandatory Random Enquiry Programme (MREP), where HMRC selects R&D claims at random, regardless of whether they are compliant or not, to identify common errors, potential fraud and misunderstandings of eligibility.
With this heightened level of scrutiny, accountants and businesses need to be audit-ready! To navigate this heightened scrutiny and ensure compliance, this article will delve into:
Common triggers for R&D enquiries
Keeping up with HMRC’s evolving approach to R&D tax relief means accountants need to ensure their clients’ claims are bulletproof. As we’ve already touched upon, even well-prepared claims can result in enquiries through HMRC’s Mandatory Random Enquiry Programme (MREP).
In our recent webinar on how to be a good R&D tax claimant, Dr. Matthew Rix, R&D tax expert at EmpowerRD, explains:
“HMRC have an algorithm which triggers random enquiries. Even if a claim is completely valid, it can still be selected. It’s not always about catching errors—it’s about ensuring compliance across the board.”
But not all R&D enquiries happen randomly. The majority are triggered by errors, omissions or the complexity of the claim.
Here are the three normal triggers that tend to raise an HMRC enquiry:
1. Random Selection
Some claims are selected under HMRC’s MREP programme, regardless of their accuracy or quality. While this can be an inconvenience and delay payment, it shows how important it is to have the correct documentation, strong R&D recordkeeping and a sound technical narrative from the outset. When your claim is chosen at random, you still need to prove eligibility with confidence. Having everything in order ensures a much quicker enquiry process.
2. Errors or omissions
Even small mistakes can raise red flags:
- Financial mismatches: Discrepancies between payroll, invoices and claim totals.
- Weak technical justifications: Generic project descriptions don’t demonstrate scientific or technological advancements long AI generative narratives that miss the point.
- Incorrect cost categorisation: Including ineligible costs such as UI/UX improvements, rent, marketing or admin expenses.
- Missing time records: No clear breakdown of staff time spent on R&D activities.
- Subcontractor errors: Misallocating outsourced work or not justifying its relevance to R&D.
Dr Rix highlights how HMRC’s expectations have changed:
“In the past, you didn’t need to show distribution between projects. But now HMRC wants to see that breakdown i.e. how much time was spent on each project. Having a timesheet to support this is really useful.”
3. Complex claims
Some claims are naturally more likely to be scrutinised due to their size or structure:
- Multiple R&D projects: Each one must meet HMRC’s definition of R&D.
- Subcontracted R&D: Cost allocation is critical, making sure who did the R&D work is clear.
- Software development: UI/UX improvements are often included despite being non-qualifying under the scheme.
By spotting the red flags early, accountants can reduce the risk of an enquiry, simplify claims and protect their clients from HMRC scrutiny.
The role of comprehensive documentation
When an enquiry is raised, HMRC will ask for more evidence to prove your client’s claim is eligible for R&D tax relief. If you and your client have maintained detailed project records, tracked staff time, and made sure the financials are easy to access and defensible, you’ll be in a much stronger position to defend the R&D claim with confidence.
A well-prepared claim should include:
- Technical documentation: Your technical info should clearly explain how you aimed to make a scientific or technological advance in your field.
- Time tracking records: You should have evidence of how staff time was allocated across R&D and non-R&D activities.
- Financial evidence: The R&D costs should be validated by payroll data, invoices, and receipts.
Many businesses, especially fast-growing startups or first-time claimers, do not have the time or resources to keep information organised. However, bringing in the right tools can help dramatically:
- Project management tools like JIRA and Trello can help companies track milestones or document technical challenges throughout the year.
- Accounting and invoice capture tools can help to track and categorise R&D expenses correctly.
With robust documentation in place from the start, you significantly reduce the risk of facing an enquiry in the first place. But if one does get raised, having everything in order makes the ordeal of an enquiry far simpler and often much quicker.
Building a culture of compliance among clients
R&D tax credits are often an afterthought for startups and scaleups. A few years ago, that might have been fine, but with stricter measures in place and 5 times more enquiries, delays in relief can seriously impact cash flow and planning. It shouldn’t become urgent only when an enquiry arises or an investor starts asking questions; compliance needs to be business as usual and planned from the start of the financial year.
This is where accountants can play an important role. By introducing compliance early, businesses can avoid last-minute panics and costly delays. But how can you start to create this culture of compliance? Here are four ways you could get started:
- Regular check-ins with technical teams to ensure R&D work is logged correctly.
- Training sessions on what needs to be recorded and why it matters.
- Encouraging the use of project management tools to document technical progress in real time.
- Start the claims process early, as waiting until the end to gather data retrospectively can lead to critical information being lost or forgotten.
When compliance is built into company culture, businesses can worry less about enquiries and focus more on growth.
Why partnering with an R&D advisor makes a difference
By now, it’s no secret, R&D tax credit claims are more complex than they used to be. They require time, accuracy, domain expertise, and an up-to-date knowledge of the schemes evolving rules. For many accountants juggling a broad range of tax and advisory services, managing R&D tax claims, especially when an enquiry arises, can be a huge challenge, not to mention a costly exercise for their clients.
Enquiries can take months to resolve, draining resources and delaying R&D tax relief payments. That’s why many accountants choose to partner with specialist R&D advisors who handle claims daily and have the in-house expertise to ensure compliance and optimisation.
An experienced R&D specialist can:
- Ensure claims are robust and defensible, reducing the risk of HMRC scrutiny.
- Create a structured claims process, making it quick and easy for clients to submit claims efficiently without compromising on compliance.
- Optimise claims value, using in-house expertise to identify all eligible costs and ensure businesses don’t miss out.
- Work alongside accountants, ensuring clients receive the best possible service while making R&D claims as seamless as possible.
- Manage enquiry responses, helping businesses avoid unnecessary delays.
- Stay on top of legislative changes, ensuring every claim is compliant.
For accountants, this partnership means more time to focus on what they do best, managing finances, without the headache of navigating the complexities of R&D tax relief. For businesses, it’s about getting the most out of their relief while staying compliant, helping avoid any surprises or clawbacks from HMRC.
Dave Sellick, founder of the accountancy firm Sidgrove, echoed this in a recent conversation:
“I’ve always advocated for working with a consultant on the R&D side. It creates another layer of productivity for the company, keeps everyone accountable, and ensures you don’t miss anything.”
By working with an advisor, accountants can provide their clients with a smoother, more secure claims process, without taking on the burden themselves.
Strengthening client relationships through preparedness
For accountants, ensuring clients are ready for an HMRC enquiry isn’t just important, it’s essential. One rejected claim can affect cash flow, delay investments, and strain relationships with stakeholders.
As Dave Sellick puts it:
“Founders don’t necessarily like doing compliance, but they like having cash flow certainty. If you can tell them, ‘Look, (having a structured R&D claims process) will help your R&D claims be solid, and also keep your investors happy,’ that’s when they start paying attention.”
Great accountants don’t just help clients claim R&D relief, they make sure it’s done in a way that’s optimised to get the greatest return.
That means:
- Helping clients keep solid documentation.
- Working with R&D experts who get both the technical details and the financial side.
- Using smart tech to make compliance quicker and easier.
HMRC enquiries aren’t going away, in fact, they’re increasing. But with the right preparation, documentation, and expert support, accountants can help clients avoid common pitfalls and stay compliant.
The accountants who succeed in this space will be the ones who embrace collaboration, leverage the right tools, and take a proactive approach to compliance.
Seeking a trusted partner to help you build your R&D tax claim?
We’re here to help. Over 1200+ UK companies have trusted EmpowerRD’s R&D platform and specialists to help them build optimised, compliant R&D tax claims. Book a call with one of our team to see how we can help you.
