HMRC’s ever-evolving approach in reviewing R&D Tax Relief Claims and Compliance Strategy
Enquiry activity has risen materially. Based on HMRC’s October 2024 statistics, the R&D enquiry rate in 2023/24 was ~17% (c. 9,700 of ~61,000 claims). That’s a step-change from the low single-digit enquiry rates many firms saw pre-2020.
Compliance resources have surged. HMRC states it now has 500+ people dedicated to R&D compliance, up from ~100 in 2020/21—explicitly to run more (and more targeted) checks, particularly in the SME population.
Overall claim volumes are down. HMRC estimates 65,690 claims in 2022/23 (↓21% YoY) and a further fall to ~46,950 in 2023/24 (↓26% YoY).
Error/fraud has fallen but remains a priority. HMRC’s central estimate of error & fraud dropped from 16.7% in 2020/21 to ~7.8% in 2023/24 across both reliefs, reflecting reforms and enforcement.
Compliance checks are up across HMRC. HMRC completed 320,000 compliance checks in 2023/24 across all taxes (↑15% YoY), underscoring a broad enforcement trend.
Bottom line: While the exact increase in R&D enquiries varies by segment, authoritative data shows more checks, more specialist staff, and lower tolerance for weak or poorly evidenced claims.
Key Drivers of HMRC Scrutiny:
Reforms & integrity drive. Policy changes (new Merged RDEC scheme, AIF, pre-notification, PAYE/territorial rules) were paired with targeted risk-based compliance in the SME cohort.
Falling volumes, bigger average claims. Fewer, larger claims naturally attract closer review.
Public accountability. Parliament, NAO and the press have scrutinised R&D reliefs; HMRC has responded by scaling compliance
What this means for Software & Engineering Claims...
Expect deeper technical challenge
HMRC caseworkers are pressing for clear articulation of technological/scientific uncertainties, not just descriptions of project outputs or commercial aims. Software claims (AI/ML, data pipelines, integrations) and engineering claims (materials, tolerancing, systems integration) are being tested on methodology, boundary of R&D, and apportionment. (Trend reflected in enquiry commentary and practitioner guidance.)
Territoriality & resourcing decisions matter
Under current rules, relief for subcontracted R&D and EPWs generally requires the work to be carried out in the UK, which is already changing supplier strategies—particularly for dev teams previously offshore. (Part of the reform narrative documented by HMRC.)
Documentation quality is now decisive
Claims that previously “passed” may now be queried where time apportionment, role mapping, or links from uncertainty → activities → costs are not evidenced to a technical standard.