HMRC R&D Enquiries – 2025 Update
In recent years, HMRC has significantly intensified its compliance activity on Research and Development (R&D) tax relief claims, reflecting growing concerns over misuse and error within the scheme. What was once considered a relatively low-risk area has now become a focal point for HMRC, with a sharp rise in enquiries across both SME and RDEC claims. This shift follows a series of policy updates, public consultations, and structural changes to the scheme aimed at tightening controls and ensuring that only businesses that are making advancements in science or technology benefit from the relief.
HMRC’s compliance drive began in 2022 and it has been well-documented how many businesses have fallen foul of HMRC’s hard-line approach to enquiries. In this article, we examine several examples of how compliance checks are being undertaken in 2025.
YesTax has extensive exposure to R&D enquiries and is very well-placed to assess HMRC’s compliance activities. Our exposure is threefold:
- Giving professional opinion for an insurance provider on claims (prepared by others) which are subject to enquiry.
- Our enquiry resolution service for companies which have not used YesTax as their claim adviser.
- Representing our own clients that are subject to a compliance check (thankfully, few and far between in 2025).
On average, YesTax has sight of 20 new R&D enquiries each month – so we have a keen understanding of HMRC’s latest trends and tactics.
We’ve outlined several observations from compliance checks in recent months.
84 (Eighty-Four) Opening Questions
One of the common complaints aimed at the now infamous ISBC, was the ‘templated’ questions contained in the opening enquiry letter. These questions, almost universally, did not consider any information which had been provided in the report and/or AIF. Recipients of such letters were often frustrated at HMRC’s approach which was akin to ‘we’ve received your claim, but can’t be bothered to consider what you’ve provided, so here’s 16 standard questions to answer’.
Whilst this trend still continues, there has been an improvement. Approximately 50% of the letters we now see from HMRC reference information already provided in the AIF. This should be welcomed, as it indicates that someone, somewhere, has read the report and/or AIF.
However, in March 2025, we caught sight of an opening enquiry letter issued from ISBC. The claim was formed of a single project, with costs amounting to £1.1m. A lengthy report had been produced by a third party adviser, which gave information over and above that which was found in the AIF.
Astonishingly, HMRC’s opening letter contained 84 (!) separate questions, several of which included sub-questions. In total, there were over 100 information requests contained in the opening letter. The questions were tailored to the information provided to HMRC, so some credit should be given for not issuing the standard templated questions that claimant companies will be familiar with. However, consideration should also have been given to the sheer burden that the letter placed on the taxpayer. It is likely that responding to each question would take weeks – an entirely unreasonable amount of time, even more so when the company was required to respond within 30 days of the letter being issued.
Whilst the move away from templated questions should be welcomed, it cannot be considered reasonable to ask over 100 questions for a claim comprised of a single project.
Enquiry closed despite errors being identified
In January 2025, YesTax was approached by a company which had received an opening enquiry letter into its latest R&D tax relief claim. Our Senior R&D Tax Consultant, James Smith, established that although the claim appeared valid from a technical perspective, around £70,000 of the claimed costs (out of a total £450,000) were not qualifying.
YesTax engaged with the client to prepare a detailed response to HMRC’s questions. The response also disclosed the fact that £70k of costs had been incorrectly included in the original claim. It was proposed that an amended return would be submitted with the revised qualifying expenditure figure. This would result in a repayment of tax to HMRC of approximately £20,000. Our response also pre-empted penalty related questions in respect of the inaccuracy.
Cue our surprise when several weeks later, a closure notice was received from HMRC stating that the tax return did not need to be amended. This was despite a clear statement in the letter to HMRC outlining how £70k of costs had been incorrectly included. It appeared that HMRC had ignored the error disclosure, with a cost to the exchequer of £20,000.
Whilst the closure notice was welcomed by the claimant company, we were perplexed at HMRC’s decision to ignore the error disclosure. Over the past few years, HMRC has denied hundreds of valid claims, yet now it appears to be allowing claims which are erroneous.
Too busy? Too lazy? Or merely incompetent?
We’ve made a decision – but send more information!
In the summer of 2024, YesTax was approached by a claimant company that was under enquiry. The company had already responded to HMRC’s opening letter but had subsequently received notification from HMRC that the claim did not meet the qualifying criteria. YesTax engaged with the company to prepare a further response. In October 2024, the company received HMRC’s View of the Matter letter which maintained HMRC’s position that the claim was invalid. The letter invited an appeal to ISBC and in December 2024, the appeal was lodged. At the same time, the company made an application for ADR.
In March 2025, the main agent of the company received a call from ISBC. The inspector on the call explained that it was his view that ADR ‘could be avoided’ and proposed a call with the company to ‘iron out a few matters’. In the interests of cooperation and a desire to resolve the matter as quickly as possible, the client accepted the call with ISBC.
Unfortunately, and unexpectedly, the call involved several ‘new’ questions about the claim. In addition, after the call had finished, the company was sent a letter requesting a substantial amount of information. We questioned this – HMRC had already issued its decision yet now it was requesting information about new matters, despite having ample opportunity to request the information during the compliance check.
This is not the only example of HMRC requesting information after it has made its decision. Another case worthy of mention involved a case where a claim had been denied. An unsuccessful appeal had been made to ISBC and the client was invited to appeal to SOLS. However, in the same letter the client was invited to appeal to SOLS, there was a further request for information about the claim (much of which had already been provided).
Both cases demonstrate that many individuals working within the R&D ISBC team are not properly trained on how a compliance check should be structured. Once ISBC has issued its decision, it should not ask for further information. If ISBC feels further information is required, it should not have issued its decision, as the information it had to hand at the time the decision was made was clearly insufficient to form a view.
Contracts of employment – reasonably required?
HMRC has the right to ask for information and/or documents that may reasonably be required to check that a tax return is accurate. Depending on the focus of the enquiry, the information and/or documents may take many forms.
In several recent R&D enquiries, we have seen HMRC request contracts of employment for staff members included in the R&D claim. This has always been accompanied with a request for payroll reports and bank statements showing amounts paid to individual staff.
Given that HMRC already has access to monthly payroll data provided in RTI submissions, it could be argued that requesting payroll reports from claimant companies is placing an unnecessary burden on claimant companies. However, as payroll data is normally readily available, it is not a request that we routinely advise to push back on. Requesting bank statements, to ensure payment requirement of claimed costs has been met, also seems reasonable.
However, contracts of employment, in our view, are not reasonably required for the purposes of checking a claim for R&D tax relief. Employment contracts do not provide any information to HMRC (relevant to the R&D claim) over and above the information that can be obtained from a payroll report, HMRC’s own internal PAYE systems or bank statements showing the payments being made to staff. Contracts of employment contain personal (and possibly sensitive) information which bears no relevance to the claim for R&D relief.
We have routinely denied HMRC’s requests for contracts of employment. It is apparent that someone, somewhere within HMRC, shares our view on the matter as our push backs have never been challenged.