The Challenge: A Typical ISBC Enquiry
When HMRC's ISBC unit challenged our client's software development R&D claim, we encountered a pattern that will be familiar to any R&D tax advisor operating in the post-2022 compliance environment:
- No named HMRC R&D Inspector - correspondence signed off generically by the "R&D Tax Credits Compliance Team"
- Months between responses - each reply felt like a new caseworker had picked up the file without reading the previous correspondence
- Predetermined conclusions - little attempt to engage with technical questions, with standard phrases like "open searches" and "routine adaptation" deployed repeatedly
Despite this, our assessment remained unchanged: the development work met the qualifying criteria for R&D tax relief.
The Setback: Statutory Officer of Legal Services Review
When HMRC rejected the claim, we requested a Solicitors Office & Legal Services (SOLs) review. Unfortunately, the SOLs officer upheld HMRC's position.
This was December 2023, just before Christmas. Disappointing timing, but we had several factors in our favour:
1. Recent Case Law
The Get Onbord Ltd v HMRC case had just been published by the First Tier Tribunal. While it came too late to reference in our correspondence, the facts were remarkably similar to our client's situation - and the tribunal had found in favour of the taxpayer.
2. Conviction in the Technical Position
Most importantly, I remained convinced that HMRC had failed to understand the nature of the technical work and the resulting technological advance. The caseworkers weren't asking the right questions. If we could get in front of someone with appropriate technical knowledge, we would succeed.
3. Client and Advisor Alignment
During our internal meeting to decide next steps, the client's lead competent professional said something that crystallised the decision: "I am prepared to die on this hill."
When you have that level of conviction from the technical team, combined with solid professional advice, you have the foundation for a tribunal challenge.
So we did it:
We filed for appeal at the First Tier Tribunal.
The Turning Point: HMRC's Response
As soon as tribunal proceedings began in earnest, HMRC's approach transformed completely.
The "big guns" arrived. We were suddenly dealing with senior technical specialists who:
- Actually understood the technology
- Asked substantive, relevant questions
- Engaged constructively with our technical evidence
- Demonstrated genuine expertise in software development R&D
Within days - not months - we had reached a settlement. The claim was substantially upheld, with only a minor adjustment made on a without prejudice basis.
The contrast with the preceding enquiry process was stark.
Key Lessons for Companies Facing R&D Enquiries
When to Stand Firm
If you meet ALL of these criteria, consider pursuing your case despite HMRC rejection:
1. You've had proper professional advice from a qualified advisor with genuine R&D tax credit expertise
2. Your technical team genuinely believes the work was R&D - not just commercially innovative, but technologically uncertain at the outset
3. You can articulate the baseline - what competent professionals in your field could have achieved at the project's start date
4. You have contemporaneous evidence - project documentation created during the work, not reconstructed afterwards
5. You can afford the process - tribunal proceedings require time, money, and management attention
When NOT to Fight
This is not a licence for "have a go hero" advisors to push forward with weak cases. HMRC will rightly challenge claims where:
- The advisor has taken an aggressive interpretation of the rules
- The technical justification is thin or generic
- The claim relies heavily on hindsight
- The company can't articulate technological uncertainty
Don't be the test case for a marginal position.
The Reality of HMRC Enquiries in 2024-2025
HMRC's approach to R&D tax credit enquiries has evolved since the compliance crackdown of 2022. We're seeing:
- More technical engagement - when cases escalate, specialist teams do get involved
- Greater willingness to settle - once tribunal proceedings begin, pragmatic discussions often follow
- Continued issues at initial enquiry stage - the generic rejection letters and poor communication persist
- Focus on software claims - particularly those handled by volume providers or involving web/app development
What This Means for Your Business
If you're currently facing an HMRC enquiry into your R&D claim:
- Don't panic - but don't ignore it either. Time limits apply at every stage.
- Get independent review - if your current advisor isn't providing robust technical defence, seek a second opinion before you concede.
- Consider the bigger picture - what does withdrawal signal about your future claims? What's the commercial impact of repaying the credit?
- Understand your options - SOLs review, tribunal, or settlement all have different implications
Current Work: Independent R&D Claim Reviews
I'm currently reviewing another case for a company caught in the ISBC compliance process. After a protracted enquiry, they've asked me to provide an independent professional assessment of the claim's merits and recommend next steps.
This is increasingly common - companies want an objective view from someone not involved in the original claim preparation.
If you're facing an HMRC enquiry and need:
- Independent technical review of your R&D claim
- Defence strategy for challenging HMRC's position
- Representation through SOLs review or tribunal proceedings
- Second opinion on your current advisor's approach
Get in touch. I've been defending R&D claims since 2000 and have successfully navigated numerous HMRC enquiries through to settlement.
