Short answer
If HMRC questions an R&D claim, it opens an enquiry and normally holds payment until it closes. HMRC may then accept the claim in full, reduce it or reject it. You can ask for an internal review or appeal to the tax tribunal if you disagree. If you have borrowed against the claim, the company remains responsible for repaying the loan in full, whatever HMRC decides.
Key facts
- Enquiries usually hold payment until they close
- Outcomes: accepted, reduced or rejected
- You can request a review or appeal, normally within 30 days of HMRC's decision
- Inaccurate claims can attract penalties
- Borrowers stay liable for any loan against the claim
Why does HMRC open R&D enquiries?
HMRC checks claims it considers higher risk: projects that may not meet the definition of R&D, costs that may not qualify, claims much larger than previous years, or claims with an incomplete Additional Information Form. HMRC has increased compliance activity on R&D significantly, so enquiries are more common than they used to be.
What does an enquiry involve?
HMRC writes asking for information about the projects and costs. Your adviser responds with technical explanations and evidence. Enquiries can take several months, longer if there are many questions or the claim is complex.
If your claim is reduced or rejected
HMRC issues a closure notice with its decision. If you disagree, you can normally ask for an independent internal review or appeal to the First-tier Tribunal within 30 days. Many claims are partially reduced rather than rejected outright, for example where some projects or costs don't qualify.
If you've borrowed against the claim
An R&D loan is a loan to the company, not a purchase of the claim. If HMRC pays less than expected, or nothing, the company must still repay the lender. That is why lenders advance a percentage of the claim, not all of it. Before borrowing, ask any lender what happens if HMRC delays, reduces or rejects your claim.
How to lower the risk
- Use a reputable specialist adviser.
- Keep contemporaneous records of projects, uncertainties and time spent.
- Keep claims consistent with previous years, and explain big changes.
- Check that subcontractor and overseas costs meet the current rules.
Related: R&D Advance →
Related questions
How long does an HMRC R&D enquiry take?
Often several months; complex cases can take longer.
Will HMRC charge penalties?
Only if the claim was inaccurate through carelessness or deliberate behaviour. Penalties depend on the behaviour and whether you disclosed the error.