R&D tax credit defence is the process of protecting your company's Research and Development tax credit claim when HMRC opens a formal enquiry or compliance check. It involves proving that your projects meet the legal R&D definition, that your costs are correctly calculated and evidenced, and managing the enquiry process so you do not concede ground unnecessarily or face avoidable penalties. I am Steve Livingston FCA, founder of IP Tax Solutions. I have been defending R&D tax credit claims against HMRC for over 20 years, including cases involving fraud allegations, cases headed for tribunal hearings and claims worth over £1 million.

What does R&D tax credit defence actually involve?

A proper R&D enquiry defence has four workstreams running in parallel. If any one of them is weak, the whole defence is compromised.

1. Technical eligibility review

Every project in the claim is re-tested against the DSIT guidelines definition of R&D. This means mapping each project to a clear baseline (what was known before), a specific technological uncertainty (what could not be resolved by a competent professional using publicly available information), and the systematic approach taken to overcome it. HMRC caseworkers are trained to challenge vague descriptions. The technical narrative must be precise and evidence-based.

2. Financial accuracy review

The cost model is rebuilt from the ledger up. Staff costs and time apportionments are checked against payroll records and timesheets. Subcontractor costs are verified against contracts and invoices. Consumables, software, and cloud costs are linked to specific R&D projects. Every figure must reconcile to the CT600 and the Additional Information Form (AIF). If there are gaps, they need to be identified and addressed before HMRC finds them.

3. Evidence and documentation build

The strongest defence is built on contemporaneous records: project plans, design documents, test results, failed approaches, code commits, lab notes, internal emails, and meeting notes. These prove that the work was genuinely uncertain at the time, not just commercially challenging. If documentation is thin, a good specialist will help you identify alternative evidence and explain the gaps honestly.

4. Strategy and risk assessment

Not every point in a claim is equally defensible. A good specialist identifies the strong positions and the weak ones, and advises whether to defend in full, concede specific points to protect the rest, or make a voluntary correction to reduce penalty exposure. This judgment is the difference between a specialist and someone who simply rewrites the narrative and hopes for the best.

How does the HMRC R&D enquiry process work?

Most R&D compliance checks follow the same pattern, though the timeline and intensity vary depending on the claim size and HMRC's concerns.

Stage 1: The opening letter

HMRC sends a compliance check letter to your company's registered address. It lists specific questions about your claim, usually covering both technical eligibility and financial calculations. You are typically given 30 days to respond.

Stage 2: Your first response

This is the most important stage. Your response should answer every question directly, provide supporting evidence indexed to each question, and not volunteer information that was not asked for. A well-structured first response can resolve the enquiry in a single round.

Stage 3: Follow-up questions and meetings

If HMRC is not satisfied with the initial response, they will send further questions or request a meeting. Meetings typically involve the caseworker, a technical specialist, and your competent professional. Your adviser's role is to keep the discussion focused, prevent scope creep, and ensure nothing is conceded inadvertently.

Stage 4: HMRC's conclusion

HMRC will either accept the claim as filed, propose partial disallowance (reducing the claim amount), or fully disallow the claim and amend your Corporation Tax return. They will also consider whether penalties apply.

Stage 5: If you disagree

You have the right to request an internal review, apply for Alternative Dispute Resolution (ADR), or appeal to the First-tier Tax Tribunal. The 30-day window for formal appeal runs from the date of HMRC's decision letter. If the enquiry drags on unreasonably, you can apply to the Tribunal to compel HMRC to issue a closure notice.

What have I defended?

These are real cases, anonymised to protect client confidentiality.

Why are HMRC R&D enquiries increasing?

HMRC has significantly increased its compliance activity on R&D claims since 2022. There are several reasons for this.

Volume compliance approach. HMRC's Innovation, Science and Business Compliance (ISBC) unit now runs a volume compliance programme, selecting a significant proportion of claims for review. Many valid claims are selected simply through risk filters, not because HMRC has already decided they are wrong.

Mandatory Random Enquiry Programme (MREP). HMRC randomly selects claims for detailed review to measure overall compliance levels across the scheme. Being selected for MREP does not mean your claim is suspected of being incorrect.

AI-prepared claims. The rise of AI-assisted claim preparation has led to a wave of poorly evidenced, formulaic claims. HMRC's caseworkers have become adept at spotting claims that read like templates rather than genuine descriptions of technical work.

Higher stakes, higher scrutiny. Since the merger of the SME and RDEC schemes from April 2024, claim values for many companies have changed. HMRC is paying closer attention to how companies have transitioned between schemes and whether the cost calculations are correct under the new rules.

What should you do in the first 48 hours?

When you receive an HMRC enquiry letter about your R&D claim, these are the steps that matter.

1. Read the letter carefully. Identify which accounting period and claim are being enquired into. Note whether HMRC is asking technical questions, financial questions, or both.
2. Note the deadline. You typically have 30 days. If you need more time, write to the caseworker within the first week and request an extension. HMRC will usually agree if asked early.
3. Locate your claim file. Pull together the technical narrative, AIF, cost schedules, CT600 company corporation tax return and any supporting documentation.
4. Speak to a specialist before responding. Your first response frames the entire enquiry. Getting it wrong can cost you tens of thousands of pounds and months of additional investigation.
5. Do not contact HMRC until you have taken advice. Anything you say or write can shape the direction of the enquiry.

What should you not do?

• Do not respond to HMRC without proper preparation. A hasty reply often concedes points unnecessarily.
• Do not ask the person who prepared the original claim to handle the defence without scrutiny. If the claim was poorly prepared, the same person may not be best placed to defend it. They also have a conflict of interest - they are unlikely to highlight weaknesses in their own work.
• Do not ignore the letter. Non-response can lead to HMRC amending your return unilaterally and charging penalties.
• Do not volunteer information that was not asked for. Answer the questions. Provide evidence. Stop.
• Do not panic. Most enquiries, handled correctly, result in the claim being maintained in full or with minor adjustments.

How do I work?

Step 1: Diagnostic review

I review the enquiry letter, your original claim, and supporting documentation. Within a few days I give you a clear assessment: how strong is your position, where are the vulnerabilities, and what is the likely outcome.

Step 2: Defence strategy

Based on the diagnostic, I recommend the approach: defend in full, concede specific points, make voluntary corrections, or a combination. You make the decision, informed by my experience of how HMRC typically handles similar cases.

Step 3: Response preparation

I prepare the full response to HMRC: technical narrative (rescoped if necessary), financial reconciliation, evidence bundle and a cover letter that addresses every question directly. Nothing goes to HMRC without your approval.

Step 4: Correspondence management

I handle all correspondence with HMRC on your behalf. If they request a meeting, I prepare you and your technical team, attend the meeting and draft the follow-up. My role is to keep the enquiry focused and moving toward resolution.

Step 5: Resolution or escalation

Most cases resolve through correspondence or a single meeting. If HMRC's position is unreasonable, I advise on internal review, ADR or tribunal appeal. I have taken cases to the steps of tribunal and won. Most importantly, I know when fighting is the right call and when a negotiated settlement better serves your interests.

What are the warning signs your claim may be targeted?

Based on handling enquiries over 20 years, these are the patterns that most commonly attract HMRC attention:

• Large or sudden increases in claim value - a claim that doubles or triples without an obvious change in the business
• Claims prepared by volume R&D factories using template narratives that describe commercial activities rather than technological uncertainties
• Software development claims that describe agile methodology or standard development processes without identifying genuine technical uncertainty
• Claims with no competent professional identified or where the named professional cannot explain the technical work
• Missing or incomplete Additional Information Forms - HMRC flags these automatically
• Claims where costs do not reconcile to the CT600 or where staff time apportionments lack supporting evidence
• First-time claims for large amounts with limited documentation

What are the most common HMRC challenge patterns?

HMRC caseworkers tend to use a small number of recurring arguments. Recognising the pattern helps you prepare a stronger response.

"The work was routine development, not R&D."

This is the most common challenge, particularly for software companies. HMRC argues that the work used standard tools and known techniques, so there was no technological uncertainty. The defence requires showing what was genuinely uncertain at the outset - not just that the project was complex or large.

"You haven't identified the competent professional."

HMRC wants to know who in your team had the expertise to assess whether the work was uncertain. If you cannot identify this person or they cannot explain the technical challenges, HMRC will question whether genuine R&D took place.

"The costs are not properly apportioned."

HMRC challenges the percentage of staff time allocated to R&D, particularly where the same people work on both qualifying and non-qualifying activities. The defence requires a credible methodology for time allocation, supported by evidence.

"This is a commercially motivated project, not a technical advance."

HMRC argues that the work was driven by business needs (faster, cheaper, more features) rather than by scientific or technological uncertainty. The defence requires clearly separating the commercial objectives from the technical challenges that could not be resolved through standard professional practice.

"The documentation does not support the claim."

HMRC looks for contemporaneous evidence - records created during the project, not written after the fact for the purpose of the claim. If your documentation was created retrospectively, it carries less weight and requires additional supporting evidence.

How do you find a UK R&D defence specialist?

Not all R&D advisors are equipped to handle enquiry defence. The skills required to prepare a claim are different from the skills required to defend one under HMRC scrutiny.

What to look for:

• Specific enquiry defence experience. Ask how many R&D enquiries they have handled in the last 24 months, in which sectors, and what the outcomes were. "We've done hundreds of claims" is not the same as "I've defended 30+ enquiries and been prepared to take cases to tribunal."
• Professional regulation. Prefer advisers regulated by ICAEW, CIOT, ACCA, or ICAS. From April 2026, tax advisers interacting with HMRC must be registered and meet minimum standards.
• Both technical and tax capability. The specialist needs to understand the DSIT guidelines and be able to work with your engineers or scientists to articulate the technical work. They also need to understand Corporation Tax computation, penalty legislation and appeal procedures.
• Willingness to concede where appropriate. A good specialist protects your overall position, which sometimes means conceding a weak point to strengthen the defence of everything else. Be wary of anyone who promises to "fight everything."
• Clear fee structure. Common models are fixed fee per phase (diagnostic, response preparation, ongoing correspondence) with a separate fee if the matter goes to review or tribunal.

Red flags:

• They prepared the original claim and now want to defend it on a contingent fee basis. Their incentives may not align with your risk.
• They promise guaranteed outcomes or specific timescales for resolution.
• They discourage involving your technical staff in the process.
• They suggest providing everything HMRC asks for without triaging what is required versus what is optional.

What if your original claim preparer is the problem?

This is more common than most people realise. The person or firm who prepared your R&D claim may not be the right person to defend it, for three reasons.

1. Conflict of interest. If the claim was poorly prepared - vague technical narrative, aggressive cost treatment, missing documentation - the original preparer has a strong incentive to downplay the weaknesses rather than address them honestly. They are defending their own work, not just your claim
2. Different skillset. Preparing a claim and defending one under HMRC scrutiny require different skills. Claim preparation is about identifying qualifying work and calculating costs. Defence is about evidence, argumentation, strategy and managing a formal process with legal consequences
3. HMRC knows. HMRC caseworkers are experienced at recognising when the same firm that prepared a weak claim is now trying to defend it with the same weak arguments in slightly different language. An independent specialist brings fresh eyes and, critically, credibility with the caseworker.

If your current advisor prepared the claim and the enquiry is anything beyond a minor administrative query, get an independent review. It is not about blame. It is about getting the best outcome.

Frequently asked questions

Discuss a case

If you have received an HMRC enquiry letter about your R&D tax credit claim and want to understand your position before responding, I offer an initial diagnostic call to review the letter and assess your options. No commitment, no sales pitch - just a clear view of where you stand.

I am Steve Livingston FCA. I have 25 years of experience in innovation tax, including training at KPMG and a partnership at a Top 20 UK firm. I specialise in the cases that other professionals cannot solve.

Email: info@iptaxsolutions.co.uk
Phone: 0161 961 0096

I'll assess your position and tell you honestly what I think. No obligation.