How to Resolve an R&D Enquiry 

 As part of HMRC’s broader crackdown on non-compliance, even if your claim is legitimate, there’s still a chance HMRC could come knocking. So, how should you respond? Whether your submission is being scrutinised by HMRC due to the Mandatory Random Enquiry Programme (essentially, a random check) or an issue they’ve noticed in the tax return or Additional Information Form (AIF), here are some tips that can help you resolve an enquiry quickly and efficiently. 

 

Ensure there’s a report attached alongside your tax return 

In August 2023, HMRC introduced the AIF. Whilst this is a great tool to give a snapshot summary of your claim, it is essential that you provide full information to HMRC upfront, which means a detailed R&D report is crucial. This gives you the opportunity to address areas that aren’t included within the AIF, such as contractual arrangements, and a detailed quantification methodology. By giving this information to HMRC upfront, you mitigate the risk of further questions from HMRC later down the line. 

 

Preparation before submitting   

Next, your report should be designed to proactively address any potential questions HMRC may raise. While enquiries can never be entirely avoided, this approach can significantly reduce risk. For example, does your report have a coherent technical narrative? There are some key things your adviser should be looking into which will indicate if you should stick or switch advisers when facing an enquiry.   

For instance, the following documentation should be well organised:   

• Project plans  

• Meeting minutes   

• Technical reports   

• Contemporaneous notes  

• Staff time sheets   

• Invoices   

• Financial records  

  

Navigate the different stages of an R&D enquiry   

To help manage an enquiry effectively, it’s helpful to break the process down into the key stages an adviser would typically face. Understanding these stages brings structure and transparency to what can otherwise feel like an open-ended process with a never-ending cycle of back-and-forth correspondence. 

Phase 1 – First Contact Engagement  

This phase relies on quick and professional responses to HMRC to establish control from the outset. Before submitting any documentation, it’s sensible to conduct an internal review to spot any weaknesses in your claim.   

 

• Confirm deadlines and preferred communication methods.  

• Decide on representation: Who will be the main point of contact (internal expert or external advisor)?  

• Organising the evidence  

• Create a central hub for all requested documents.  

• Map the requested information directly to your internal documentation   
• Internal Review and Gap Analysis.  
• Review the evidence before submission. Are there any weak spots? Prepare clear, written explanations for potential ambiguities.   

 

Phase 2 – Technically Addressing the Enquiry – The ‘R&D Test’  

Once the groundwork is in place, the focus shifts to how the claim is presented and defended. This stage is about clarity and credibility. It’s important to align the narrative of your R&D in a way that stands up to HMRC scrutiny. Consideration of these key points is crucial:  

 

• Structure the technical narrative: You must clearly link the activity back to the statutory definition of R&D and be in line with the questions HMRC ask in enquiry letters.   

• Presenting evidence clearly: Use diagrams, timelines, and summaries for non-technical reviewers.  

• Financially support the Claim: Use evidence to support all costs claimed.   

• Justifying expenditure: Clearly linking staff costs, consumables, EPW, software, and subcontracted R&D costs to the qualifying activities.  

• Differentiating between qualifying R&D activities and routine development/commercial work: HMRC don’t need to know the details of your commercial project – they just want to know what you did to advance the scientific or technological knowledge or capability.  

 

Phase 3 – Managing Meetings and Interviews  

This phase largely focuses on direct communication with HMRC. Meetings are increasingly being used by HMRC to review R&D claims as they offer a quicker and more dynamic approach to written correspondence. These discussions are not only a key information gathering tool, but can significantly influence the outcome of an enquiry. In order to communicate effectively to HMRC on these calls, consider the following:  

 

• Preparation is crucial: Anticipate questions by preparing speakers beforehand.  

• Maintain a consistent and truthful narrative: You should be able to explain any information in your claim in detail. 

• Understanding HMRC’s position: Why are they challenging specific elements?  

• Strategic concession versus firm defence: Knowing when to concede a minor point to protect the core claim.  
• Ensuring the final position and action points are documented correctly: This will be in the form of meeting minutes and email correspondence.  
• Understanding next steps if the resolution is partial (e.g., rights to appeal): Engaging an expert in R&D Tax Disputes to discuss your options and the associated risks is essential at this stage. 

 

During this stage of the enquiry, your adviser should push for a teleconference to ensure effective, smooth communication between yourself and HMRC. Your adviser must be comfortable leading this call and preparing you so they know exactly what’s required of you. You must be sure that you draft in the right contact from the company to explain to HMRC the R&D activity carried out. For instance, it’s not effective to have a Managing Director on the call when the project lead is the best person to provide key information about the R&D activity, as they can provide the most in-depth detail. Competent knowledge of the company and project should be conveyed to HMRC on these calls to give your company the best chance of resolving the enquiry.  

 

Post-Resolution – Learning and Future-Proofing  

Once an enquiry has been closed, it can be easy to draw a line under it and move on. However, it’s important to reflect on the process and draw out the lessons learnt from successfully defending the enquiry. It will help strengthen future claims, ensure full compliance, and ensure you’re even better prepared should another enquiry arise.  

 It is important that you:  

• Clearly document the entire enquiry process and the outcome (your adviser should be able to help with this).  

• Note any specific feedback from HMRC regarding your documentation or approach.  

• Update internal documentation standards based on the enquiry’s findings.  

• Schedule periodic internal reviews of R&D claims before submission.  
  

 

Without a competent adviser to support you through the process, resolving an enquiry can be extremely challenging. Ensure you choose an adviser who is open about their expertise, success rate and process. Having the right partner can be the difference between a stressful review and a smooth, successful resolution.