If you have received an HMRC enquiry letter about your R&D tax credit claim, do not respond immediately. Read the letter carefully, note the deadline (usually 30 days), and speak to a specialist before you reply. Your first response sets the tone for the entire enquiry. Getting it wrong - or giving away ground early - can cost tens of thousands of pounds and months of unnecessary investigation. I am Steve Livingston FCA, and I have been defending R&D tax credit claims against HMRC for over 20 years.
What is an HMRC R&D tax credit enquiry?
An HMRC R&D tax credit enquiry is a formal compliance check into your company's Research and Development tax credit claim. HMRC opens an enquiry by sending a letter to your company's registered address, listing specific questions about your claim.
This is not a routine administrative request. It is a legal process. HMRC has the power to amend your tax return, reduce or remove your R&D credit, and in many cases, charge penalties.
HMRC now checks a significant proportion of all R&D claims. The increase in volume compliance activity since 2023 means more valid claims are being selected for review. Receiving an enquiry letter does not mean HMRC has decided your claim is wrong. It means they want to see your evidence.
What should you do in the first 24 hours?
Your first actions matter more than most people realise. Here is what to do and what to avoid.
Do this immediately:
- Read the letter carefully. Identify which accounting period and which claim HMRC is enquiring into.
- Note the response deadline. This is usually 30 days from the date of the letter.
- Identify whether HMRC is asking technical questions (does your work qualify as R&D?), financial questions (are the costs correct?), or both.
- Locate your original claim documents: the Additional Information Form (AIF), technical narrative, cost schedules and the relevant CT600 company corporation tax return.
Do not do this:
- Do not call HMRC to explain or reassure them. Anything you say can shape the direction of the enquiry.
- Do not ask your original claim preparer to draft a quick reply without proper review.
- Do not ignore the letter. Non-response can lead to HMRC amending your return unilaterally.
What is the single biggest mistake companies make?
The single biggest mistake is responding before getting proper advice.
A company might receive an enquiry letter on a Monday, the directors panic and jump to emailing HMRC a detailed explanation by Wednesday. In that explanation, they inadvertently concede a technical point - acknowledging that part of the work was "routine development" - that HMRC then used to challenge the rest of the claim.
That concession was unnecessary. The work did qualify. But once you have said it in writing to HMRC, it is very difficult to take it back.
Your first response frames the entire enquiry. A strong, well-structured initial reply can resolve the matter in a single round of correspondence. A weak or hasty one can turn a straightforward check into a 12-month investigation.
What is HMRC actually looking for?
HMRC's R&D enquiry teams are trying to establish two things:
1. Technical eligibility
Do your projects meet the DSIT guidelines definition of R&D? Specifically:
- Was there a genuine scientific or technological uncertainty?
- Did you work to a plan?
- Could a competent professional in the field have resolved it easily using publicly available information?
- Can you clearly articulate the baseline technology and what existing solutions could/could not achieve?
- Did you undertake a systematic process to try to overcome the uncertainty?
- Was there an advance in science or technology (not just an advance for your business)?
2. Financial accuracy
Are the costs you claimed genuinely qualifying expenditure?
- Are staff costs correctly apportioned between R&D and non-R&D activities?
- Are subcontractor costs eligible and correctly calculated (65% for connected parties, 100% for unconnected under the old SME scheme)?
- Are consumables, software, and other costs directly linked to qualifying R&D projects?
HMRC caseworkers are increasingly well-trained. They will look for vague language, missing evidence and inconsistencies between your AIF and your cost schedules.
How should you prepare your response?
A good response to an HMRC R&D enquiry does three things: it answers every question directly, it provides supporting evidence and it does not volunteer information that was not asked for.
Step 1: Map HMRC's questions to your evidence
For each question in the letter, identify what document, record, or explanation answers it. If you have a gap - for example, no contemporaneous time records for staff allocation - acknowledge it honestly and explain what alternative evidence you can provide.
Step 2: Get the technical language right
HMRC expects to see R&D described in terms of the DSIT guidelines. That means:
- Clearly defined baseline (what was known before)
- Specific uncertainties (what could not be resolved by a competent professional)
- Systematic investigation (how you attempted to overcome the uncertainty)
- Advance achieved (what new knowledge or capability resulted)
Many claims are challenged not because the R&D was invalid, but because the technical narrative did not describe it in the language HMRC expects.
Step 3: Review costs with fresh eyes
Before responding, check your cost calculations independently. If you spot a genuine error, it is better to disclose it voluntarily than to have HMRC find it. Voluntary disclosure can significantly reduce any penalty exposure.
Step 4: Do not volunteer extra information
Answer what is asked. A common mistake is to provide pages of additional context that HMRC then uses to generate new questions. Be precise, be factual and stop when the question is answered.
Do you need a specialist to defend your R&D claim?
For anything beyond a minor administrative query, the honest answer is almost certainly yes.
Here is why: HMRC's R&D caseworkers do this full-time. They know the DSIT guidelines, the relevant case law and the common weaknesses in claims. Your general accountant, no matter how good they are at compliance work, is unlikely to have the same depth of experience in R&D enquiry defence.
You should instruct a specialist if:
- The claim value is material (tens of thousands of pounds or more)
- HMRC is questioning whether your activities qualify as R&D at all
- The letter mentions "error or fraud" or comes from HMRC's Fraud Investigation Service
- You prepared your claim using a third-party R&D platform e.g. AI generated R&D reports
- Your claim was prepared by a volume R&D claim factory without detailed project-level technical narratives
- You lack contemporaneous records for time allocation or project documentation
- Your general accountant has not handled R&D enquiry defence before
What a good specialist does:
- Reviews the enquiry letter and your original claim to assess the strength of your position
- Identifies vulnerabilities before HMRC finds them
- Structures the technical and financial arguments in the language HMRC expects
- Manages the correspondence and (if needed) meetings with HMRC
- Knows when to concede a point and when to push back
- Can take the case through Alternative Dispute Resolution (ADR) or to the First-tier Tribunal if necessary
I have defended R&D claims where HMRC alleged fraud and we overturned the position without amendment. I have also advised clients to make voluntary corrections where genuine errors existed, significantly reducing their penalty exposure. The judgment to know which approach is right comes from experience.
How long does an HMRC R&D enquiry take?
Most R&D enquiries take between 3 and 12 months, depending on complexity and how well the first response is handled.
A straightforward enquiry with a well-prepared initial response can sometimes be resolved in a single round of correspondence - as little as 6 to 8 weeks.
A complex enquiry, or one where the initial response was weak or incomplete, can run for 12 months or longer. If the matter goes to ADR or tribunal, add additional months.
The speed of resolution is heavily influenced by the quality of your first response. This is why getting specialist help early - before you reply - is so important.
What happens if HMRC reduces or rejects your claim?
If HMRC concludes that part or all of your claim does not qualify, they will propose an amendment to your Corporation Tax return. You have the right to:
- Accept the amendment if you agree with their position
- Negotiate if you believe the position is partially correct but some elements should be preserved
- Appeal if you disagree with their decision
Appeals can be handled through HMRC's internal review process, through Alternative Dispute Resolution (ADR), or at the First-tier Tribunal. Tribunal cases are heard by a judge and a technical member with R&D expertise.
If HMRC determines there was an error, penalties may apply. These range from 0% (where reasonable care was taken) up to 100% of the tax at stake in cases of deliberate behaviour. Voluntary disclosure and/or professional advisor support before HMRC identifies the error typically results in significantly lower penalties.
Frequently asked questions
Can I request more time to respond to an HMRC R&D enquiry?
Yes. If 30 days is not enough, write to the caseworker within the first week explaining that you are gathering detailed information and request a reasonable extension. HMRC will usually agree to 14 additional days if asked early.
Should I contact the claim preparer who submitted the original claim?
Be cautious. If the original claim was poorly prepared, the same firm may not be best placed to defend it. They may also have a conflict of interest - they are unlikely to highlight weaknesses in their own work. Consider an independent specialist review.
What if HMRC is questioning a claim from several years ago?
HMRC can open an enquiry into a tax return within 12 months of the filing date (potentially longer, if the claim was filed via an amended CT600 return). However, if they suspect a loss of tax due to carelessness or deliberate behaviour, they can go back further - up to 6 years for carelessness and 20 years for deliberate behaviour.
You should also check that HMRC has opened the enquiry within the permitted time as HMRC can make mistakes - professional advice can be invaluable here.
Can I still add documentation after the enquiry has started?
Yes, you can provide additional evidence during the enquiry. However, if documentation was not in place at the time the claim was submitted, HMRC may question its authenticity or relevance. Contemporaneous records carry significantly more weight.
What if I have already received the R&D credit and spent it?
The enquiry can still proceed. The R&D tax relief incentive falls within the Corporation Tax Self Assessment regime - so HMRC can "process now, check later".
If HMRC reduces or rejects the claim, you will owe the difference back as Corporation Tax. This can create a cash flow problem, particularly for smaller companies. Early specialist advice can help you understand the likely exposure and plan accordingly.
Is there a difference between a "compliance check" and an "enquiry"?
In practice, HMRC uses both terms. A compliance check is the formal name for the process. Whether it is called a check or an enquiry, the process and your rights are the same.
These should, however, be differentiated from 'nudge letters'; although you should also take these seriously and seek advice.
Will an enquiry affect my future R&D claims?
Not automatically. You can continue to claim R&D tax credits for subsequent periods while an enquiry is open. However, HMRC will scrutinise future claims more closely if they identified issues with the enquired claim.
Note also that rejected claims can impact on the 'pre-notification rules'.
What does it cost to instruct a specialist for R&D enquiry defence?
Fees depend on the complexity of the claim and the scope of the enquiry. In most cases, the cost of specialist defence is a fraction of the tax at stake. I offer an initial diagnostic call to review the enquiry letter and assess your position before you commit to anything.
About Steve Livingston FCA
I am Steve Livingston, a Fellow of the Institute of Chartered Accountants in England and Wales and the founder of IP Tax Solutions. I have spent over 20 years working in innovation tax, including training at KPMG and a partnership at Crowe, a Top 10 UK accounting firm.
I specialise in the cases that other professionals cannot solve. R&D enquiry defence, complex SEIS/EIS structuring, Patent Box optimisation and EMI scheme complications. I am the specialist that accountants, lawyers, and corporate finance advisors call when innovation tax gets complicated.
If you have received an HMRC enquiry letter and want to understand your position before responding, I offer a diagnostic call to review the letter and assess your options. Either book a call by following the link below or email me: stevelivingston@iptaxsolutions.co.uk.
