Navigating R&D Compliance How compliant businesses can avoid the R&D tax credit crackdown

The UK's R&D tax credit scheme was created to reward innovation, giving entrepreneurs the confidence to reinvest in new processes and technologies. While that principle still remains as strong as ever, circumstances have shifted. Following widespread concerns about error and abuse (HMRC estimated £1.3bn was lost to mistakes or fraud in 2021-22), the tax authority has launched its most rigorous compliance campaign to date.

The response has been sweeping. HMRC has hired hundreds of new inspectors, established a dedicated anti-abuse unit, and triggered a 20-fold increase in enquiries into R&D claims. Officially, this is designed to protect public funds. But in practice, it has left some legitimate businesses caught in the crossfire. For businesses making genuine claims, this means the process may feel more demanding than before. Yet, the numbers tell a more complex story than the headlines. While error and fraud are real issues, only around 1% of SME claims reviewed in 2021-22 were found to be fraudulent.

The Chartered Institute of Taxation have warned that HMRC's volume-driven approach risks undermining confidence in the system, but none of this means entrepreneurs should walk away from R&D tax relief. The incentive remains one of the UK's most valuable tools for supporting innovation, and these changes need not be a cause for alarm. They simply highlight the importance of making claims as robust as possible. With the right preparation and expert support, the process can still run smoothly. This article will outline how to strengthen your position so that accessing R&D tax relief is no more challenging than before.

Vetting advisers carefully
The first and perhaps most important step in protecting your R&D claim is choosing the right adviser. Under new HMRC rules, all claims must now be submitted digitally, the adviser's identity must be disclosed, and a company director must sign off the submission. This means that the choice of adviser is more important than ever; the wrong partner can expose your business to rejected claims, lengthy enquiries, or even penalties.

A competent adviser should have specialist knowledge in the tax legislation, but also appreciate the technical and scientific aspects of your projects. They will be able to determine whether your work genuinely advances knowledge or capability in your field, rather than simply being routine development. Businesses should be wary of advisers who promise "easy wins," offer fixed guarantees, or claim to be "HMRC-approved", as this status does not in fact exist.

Transparency and accountability are equally important. A reputable adviser will outline their process in detail, including what they need from you, how fees are structured, and potential risks. They will provide a full technical report for your review before submission and offer post-claim support if HMRC raises questions. Professional recognition is another signal that your adviser is operating to high standards; check for membership in relevant professional bodies, AML registration, and professional indemnity insurance.

Avoiding poor-quality claims
Once an adviser is in place, the quality of the claim itself is the next line of defence. HMRC most commonly rejects claims when the project does not clearly demonstrate a genuine advance in science or technology. Businesses often struggle to articulate the technical uncertainties they face, or to distinguish true innovation from routine commercial activity. Under the latest rules, this is especially important because the Additional Information Form now requires a detailed narrative describing the project, the challenges, and how your team overcame them.

Additionally, your reporting of costs needs to be thoroughly accurate. This includes staff hours, subcontractor fees, and other eligible expenditures, which must all be carefully documented and classified. This risk of overstating costs or misallocating them isn't worth it; this can trigger scrutiny and significantly increase the risk of a repayment demand. Equally crucial is a coherent technical narrative. This should be written or reviewed by someone directly involved in the work and clearly explain how specific uncertainties were addressed.

A final safeguard is a watertight internal review before submission. If your adviser hasn't asked you to sign off on both the technical narrative and the financial elements of the claim, that is a red flag. Even with careful preparation, HMRC enquiries may still occur, but improving the quality of your submission drastically reduces the likelihood of unnecessary disputes and strengthens your position should questions arise.

Responding to HMRC enquiries
Even high-quality claims can come under scrutiny. HMRC has the legal authority to check tax returns, and the past few years have seen a marked increase in detailed enquiries into R&D claims. Receiving a notice of enquiry can be unsettling, but know that it is not an accusation of fraud, and often merely a routine review.

When an enquiry does occur, a prompt and evidence-backed response is imperative to get the best possible outcome. HMRC inspectors sometimes misunderstand the science involved or misapply the rules, and this is where an experienced adviser provides real value. They can help present technical evidence clearly, reference legislation, and make sure that the conversation remains fact-based rather than adversarial.

If agreement cannot be reached, businesses can then request an independent internal review within HMRC, or use Alternative Dispute Resolution to mediate. And, as a last resort, disputes can also be escalated to a tribunal, though delays of over 18 months are not uncommon. Staying calm, organised, and working with the support of expert advisers often allows businesses to successfully defend their claims, even in complex enquiries.

Staying compliant long-term
Finally, compliance is not a one-off exercise but an ongoing discipline, and firms that embed good habits into their record-keeping are far better placed to withstand future changes to the scheme. Document activities in real time, classify costs consistently, and maintain an archive of technical evidence; this will reduce your risk and shorten the process of preparing a claim. It also provides resilience in the face of HMRC's requirements, which in recent years have included reduced rates of relief and tighter definitions of eligible expenditure. For innovative businesses, the stakes are high: strong compliance practices can be the difference between sustaining investment in R&D and being forced to scale back because of unexpected financial shocks. The R&D tax credit scheme remains a valuable incentive for UK businesses, but there's no question that the environment has changed. With HMRC's enforcement measures growing more assertive, compliant companies cannot assume that good faith alone will protect them. Choosing the right adviser, preparing robust claims, responding effectively to enquiries, and embedding long-term compliance processes are all essential steps. Done well, these measures will safeguard access to relief and allow firms to pursue their ambitions without fear of being penalised for honest mistakes.