How HMRC Reviews R&D Tax Credit Claims (And What Triggers an Enquiry)

How HMRC Reviews R&D Tax Credit Claims

This guide explains how HMRC actually reviews R&D tax credit claims, what triggers enquiries, and how startups can reduce risk while still claiming what they’re entitled to.

Every R&D claim submitted to HMRC goes through an initial risk-assessment process.

This doesn’t mean HMRC assumes the claim is wrong. It means they are checking whether it looks credible, consistent, and compliant with the rules.

At a high level, HMRC looks at:

• The technical justification for the R&D

• The level of detail in the narrative

• The size of the claim relative to the business

• Whether the costs claimed make sense

• The company’s previous claim history

• Patterns across advisers and sectors

Some claims are processed quickly. Others are flagged for further review.

What Happens When a Claim Is Flagged?

If HMRC wants more comfort, they may:

• Ask clarification questions

• Request additional documentation

• Open a formal R&D enquiry

An enquiry doesn’t automatically mean the claim is invalid. It means HMRC wants evidence that the R&D meets the definition and that the costs claimed are reasonable.

However, enquiries can slow payment significantly and require management time to resolve.

Common Triggers for HMRC R&D Enquiries

Based on recent HMRC behaviour, these are some of the most common red flags.

1. Generic or Low-Quality Technical Narratives

HMRC places significant weight on the technical explanation.

Common issues include:

• Vague descriptions of “innovation”
• Overly commercial language
• Copy-paste templates
• No clear explanation of technical uncertainty
• No explanation of why the solution wasn’t readily available

HMRC wants to understand what was hard, why it was hard, and how you tried to solve it.

2. Claiming Routine Development as R&D

Routine software development is not automatically R&D.

Examples that often cause issues:

• Standard feature builds
• Cosmetic UI changes
• Routine bug fixes
• Implementing known solutions

If a claim doesn’t clearly distinguish R&D work from business-as-usual development, it’s more likely to be challenged.

3. Claims That Feel Disproportionate

HMRC will often sense-check claims against the size and stage of the company.

Red flags include:

• Very large R&D claims relative to turnover
• High R&D spend with minimal technical explanation
• Significant year-on-year increases without explanation

This doesn’t mean large claims are wrong — but they do require stronger justification.

4. Poor Cost Apportionment

Costs must be directly linked to qualifying R&D.

Issues include:

• Claiming 100% of staff time without evidence
• Including commercial, sales, or support activity
• Weak rationale for subcontractor costs
• No explanation of how percentages were calculated

HMRC increasingly expects cost assumptions to be defensible, not just estimated.

5. Adviser Risk Profiling

HMRC monitors patterns across advisers.

Claims linked to advisers submitting:

• High volumes of similar reports
• Aggressive interpretations
• Repeatedly challenged claims

are more likely to face scrutiny. This is one reason founders should be cautious about “100 success rate" advisers, or providers focused purely on claim size.

What Evidence Does HMRC Expect to See?

HMRC doesn’t expect perfection — but they do expect credibility.

Strong evidence includes:

• Clear technical narratives written in plain English
• Explanations of failed approaches or iterations
• Internal project documentation
• Architecture diagrams or technical notes
• Sprint plans or development logs
• Time-allocation logic for staff

The goal isn’t volume, it’s to give clarity to HMRC when under the spotlight of their review.

How Long Do HMRC R&D Reviews Take?

Timeframes vary, but broadly:

• Low-risk claims may be processed within weeks
• Reviewed claims can take several months
• Enquiries can extend significantly longer

If a claim is critical to cash flow, planning ahead is essential.

How to Reduce R&D Enquiry Risk (Without Under-Claiming)

The aim isn’t to avoid scrutiny, it’s to submit claims that stand up to scrutiny.

Practical steps founders can take:

• Document R&D as it happens, not retrospectively
• Be precise about what is genuinely uncertain
• Separate R&D work from commercial delivery
• Use realistic cost allocations
• Avoid exaggerated or marketing-led language
• Treat R&D claims as part of governance, not just tax

A well-prepared claim can still be robust without being aggressive.

What If HMRC Opens an R&D Enquiry?

If HMRC opens an enquiry:

• Respond promptly
• Stick to the facts
• Avoid introducing new claims or narratives
• Provide evidence, not opinions

Handled properly, many enquiries are resolved without penalties, but poor handling can escalate issues unnecessarily.

Final Thoughts

R&D tax credits remain hugely valuable for innovative startups, but the bar for quality has risen.

Understanding how HMRC reviews claims, and what triggers enquiries, puts founders in a much stronger position to claim confidently and avoid disruption. The question is no longer “Can we claim?”, it’s “Can we justify the claim if HMRC asks?” That’s where good preparation makes all the difference.

About Accountancy Cloud and Xeinadin

Accountancy Cloud specialises in accounting and finance support for startups and scale-ups, working with founders from early stage through to Series A and beyond. If you are looking for an R&D Tax Credit specialist and the best accountant for UK startups and scale-ups, look no further.

As part of Xeinadin, this specialist expertise is supported by the scale, infrastructure and depth of a leading national accountancy group.

Choosing the right startup accountant improves decision-making, reduces financial risk, and makes fundraising and growth materially easier for founders.