As part of HMRC’s processes to ensure the integrity of the R&D tax relief scheme, compliance checks are becoming increasingly common. As such, they are not to be interpreted as a sign of potential wrongdoing, but as a routine safeguard. In this article, we explore what have we learned over the past couple of years so that businesses can prepare and respond effectively.

Planning ahead for compliance checks

Most companies that are claiming R&D tax relief can expect a compliance check at some point in the near future, which means that businesses need to factor in potential delays in receiving cash, in case their claim is selected for review. Building contingency into your cash flow planning will be key to avoid operational disruption. In addition, to minimise any disruption caused by the claim process, companies should also build in a claim audit trail, which will enable them to respond quickly to any questions when a check is received.

But what should you do if you receive a compliance check?

The best defence is a strong claim

We have successfully helped a range of businesses navigate compliance checks and we always find that the best defence is the preparation of a strong claim. From the outset:

• Maintain robust documentation: Technical narratives, project records, and financial data should clearly demonstrate technological advance, uncertainty, and systematic approach. But beyond just preparing a report, you should also consider collating the underlying records relating to qualifying invoices and noting how apportionments were made.

• Align with HMRC guidelines: Ensure your team understands the Department for Science, Innovation and Technology (DSIT) guidelines that define R&D for tax purposes, and review HMRC’s guidance on preparing a claim. Any advisor should be able to provide these and explain how they might apply to your specific business operation.

• Involve your competent professionals: The only person who can determine whether your claim is eligible is a competent professional in the field of science and technology. Therefore, you need to engage with your technical team to identify the qualifying projects and prepare the claim documentation. Too often claims are prepared by commercial staff or senior managers who are too far removed from the technology to make a reasonable assessment, and it is more than likely that HMRC will challenge you if they feel that this is the case.

• Seek support: Experienced advisors can help structure claims to answer HMRC’s questions. Also, they can help put in place real-time data collection processes and methodologies to streamline the claim process and minimise disruption to the technical teams developing your products.

If a compliance check is raised - how to get to closure quickly

Speed matters. Most letters from HMRC have a 30-day turnaround and can require collation and curation of a significant amount of data. To minimise delays or unnecessary follow-on questions, we recommend you follow the steps below.

Respond promptly and completely: Answer all HMRC questions thoroughly and try not to leave everything until the deadline.

Provide supporting evidence proactively: Anticipate what HMRC might request, whether that is project plans, timesheets, or technical reports. An advisor can help with planning out what additional information you should provide.

Work with an advisor:

• They will have experience with any follow-up queries.

• They can help ensure clarity and consistency in technical and financial explanations. They can provide a sense check that the explanations are understandable and make sense to someone potentially picking up the response afresh. You need to mindful that it may not be the same inspector who will review your response, so it needs to work standalone, without checking back to prior information.

• Avoid contradictions between financial and technical data. Sometimes invoices and contracts can be confusing and not written for an R&D claim audience. Therefore, getting help with how to show an inspector how the contract works in practice or what exactly an invoice relates to is key to answering HMRC’s concerns.

So, what next?

Compliance checks are a normal (though concerning) part of the R&D tax relief process. If you receive one, it should not be a cause for alarm. With proactive preparation, clear communication, and professional support, businesses can navigate checks efficiently and protect their cash flow. The message is simple: plan ahead, respond promptly, and seek expert help when needed.