- By Dov Paluch | Director, Catalyst Solutions
An HMRC compliance check letter does not give you much warning. It arrives, it states which tax year is under review, and it asks specific questions with a deadline. What happens next depends almost entirely on decisions made when the claim was built, not when the letter arrived.
A compliance check is HMRC’s formal mechanism for reviewing a submitted R&D tax claim in more detail. It sits within HMRC’s broader compliance programme, which has expanded significantly over the past few years as HMRC has increased the resources dedicated to R&D tax enforcement. When HMRC opens a compliance check, it is asking the company to demonstrate that the claim it submitted meets the qualifying criteria under the relevant legislation.
These checks are not a punishment for bad behaviour. HMRC opens them on legitimate claims filed by well-run businesses, often as part of routine compliance activity. What the process reveals, quickly and with some force, is whether the claim was built on a foundation that can be explained and evidenced, or whether the claim was built without enough attention to the evidence that would need to support it.
Understanding what a compliance check involves, what HMRC asks for, how the process unfolds, and what typically determines the outcome, is worth doing before one arrives, not after.
HMRC does not manually review every R&D tax claim. The volume makes that impossible: in 2023/24 alone, HMRC received around 61,000 claims. What they do instead is risk assess every claim through a process that combines data analysis with human review. HMRC has confirmed that digital submissions and the Additional Information Form were introduced specifically to improve this risking process, giving them better data to identify higher-risk claims before any compliance officer gets involved.
HMRC does not publish the precise criteria its risk assessment system uses, but the pattern of compliance activity and HMRC’s own published guidance point to certain characteristics that consistently attract closer attention. Sharp year-on-year increases in qualifying expenditure are one signal. A high proportion of subcontractor or externally provided worker costs is another. Technical narratives that describe outcomes rather than the work itself, SIC codes that suggest the business is unlikely to be conducting R&D, and inconsistencies between the Additional Information Form and the tax return all increase the likelihood of a claim being flagged for review.
Claims that clear those flags may still be selected through HMRC’s Mandatory Random Enquiry Programme, which picks a proportion of claims at random regardless of risk indicators. This is deliberate. It helps HMRC calibrate its data on the broader population of claims, not just those that look unusual. At a recent HMRC R&D Communication Forum, HMRC communicated its move away from broad-based campaigns towards a more risk-based and targeted review process. Coupled with an increase in HMRC caseworkers, this means a higher proportion of claims are receiving closer examination.
The specific triggers HMRC uses to select claims, including which risk indicators carry the most weight and how random selection works alongside targeted review, are covered in detail in our previous post about what triggers an HMRC investigation into an R&D tax claim. Some triggers relate to how the claim was built. Others are outside your control entirely.
A compliance check begins with a letter from HMRC. The letter states which tax year is under review, outlines the aspects of the claim HMRC wants to examine, and requests specific information. There is typically a 30-day deadline to respond.
That deadline is not advisory. Missing it does not make the enquiry go away. It complicates the relationship with HMRC from the outset and can signal that the company is not well organised.
The questions in a compliance check letter map closely to what the Additional Information Form asked the company to set out at the point of submission: the scientific or technological uncertainties addressed, the baseline the company was working from, how it approached resolving those uncertainties, and how qualifying costs were calculated. A company that answered those questions carefully will find the compliance check largely covers familiar ground. The responses already exist, the thinking has already been done, and the documentation was built to support it.
A company that treated the AIF as a formality will not.
The compliance check has two distinct strands: the technical substance of the claim and the financial basis for it. Both run in parallel, and both need to be answered.
HMRC’s compliance officers are tax specialists, not domain experts in science or technology. HMRC’s own enquiry letters ask that technical explanations be set out „at a high level, in a form understandable to the non-expert“, which tells you something important about how the review works. Officers are assessing whether the technical narrative is plausible and consistent with the published qualifying criteria, not evaluating the underlying science independently.
This creates a specific challenge. A technical narrative that is dense with jargon but light on explanation may satisfy a non-specialist reader initially. It will not survive a follow-up question asking what the uncertainty was and why a competent professional working in the field would have found it genuinely uncertain. HMRC has become more sophisticated in asking those follow-up questions.
What HMRC is looking for is whether the work described meets the statutory definition of R&D. Specifically, that means:
Routine development, product customisation, and work that applies existing knowledge without encountering genuine uncertainty does not qualify, regardless of how it is described.
Alongside the technical review, HMRC will examine the costs claimed. This typically means reviewing staff time allocations, subcontractor arrangements, consumable costs, and the methodology used to apportion expenditure between qualifying and non-qualifying activity.
HMRC will ask for payroll records, contracts, timesheets, and cost breakdowns. They will check whether the apportionment methodology is reasonable and consistently applied. If a company has claimed 80% of a senior engineer’s time as qualifying R&D but cannot explain what the remaining 20% was spent on, that inconsistency will attract attention.
The documentation needed to support the financial side of a compliance check is largely the same documentation that should have been compiled when the claim was prepared. Our recent post about what documentation HMRC actually needs for an R&D tax claim covers this in detail. Records created during the R&D process are far more credible to HMRC than documentation pulled together after a compliance check has opened.
A compliance check rarely resolves in a single exchange. Most proceed through several rounds of correspondence, with each response either satisfying HMRC’s questions or prompting further ones.
The initial response is the most important. A comprehensive, well-structured reply that directly addresses the questions HMRC has raised, with supporting documentation attached, is far more likely to bring the check to a close quickly than a brief response that defers to future correspondence. HMRC compliance officers are reviewing multiple cases simultaneously. A clear, complete response that makes their job straightforward works in the company’s favour.
Where HMRC has concerns that a single round of correspondence does not resolve, the check moves into a discussion phase. This may involve further written requests, a call or video conference, or in some cases a meeting. Teleconferences at this stage can be particularly useful because they allow technical questions to be addressed in real time, with the opportunity to explain complex work in terms that a non-specialist can follow. This is also where having a technically qualified person involved in the response makes a real difference. Someone with genuine field knowledge who can explain the uncertainty clearly, answer follow-up questions directly, and give HMRC confidence that the work described in the claim reflects what actually happened. Written correspondence does not always allow for that kind of back-and-forth.
Throughout this process, HMRC is also assessing whether the company has taken reasonable care in preparing its claim. The penalty position, if HMRC ultimately concludes that some or all of the claim is not supportable, is directly affected by that assessment.
Where correspondence runs through multiple rounds without reaching agreement, HMRC will issue a closure notice setting out its position and any adjustment it intends to make to the claim. Where a credit has already been paid, repayment of the disputed amount will be sought. At that point the company has a choice: accept HMRC’s position or appeal.
An appeal triggers a formal dispute process. The first step is an independent review by a separate team within HMRC, not involved in the original check, who look at the decision with fresh eyes. If that review reaches the same conclusion as the original compliance officer, the next step is the First-tier Tax Tribunal, a formal legal proceeding before an independent judge whose decision is binding on both parties. That route is lengthy and carries professional legal costs, but it is a genuine avenue of redress and tribunal decisions have not consistently favoured HMRC in R&D cases in recent years.
At any point where the compliance check has stalled or communication has broken down, either party can apply for Alternative Dispute Resolution. ADR is a separate process that runs alongside the formal enquiry and appeal stages rather than replacing them. An independent HMRC mediator, trained in conflict resolution and not involved in the original check, works with both sides to find areas of common ground. There is no binding outcome unless both parties agree to one, and applying for ADR does not affect the right to appeal. It is particularly useful where there are misunderstandings about the technical facts of the work or where correspondence has become unproductive.
How serious a compliance check becomes depends largely on how the original claim was built.
For a claim built on solid technical analysis, with costs that trace back to specific qualifying activities and documentation created during the R&D process, a compliance check is a process to be managed. Time-consuming, but ultimately resolvable.
For a claim where insufficient attention was given to the evidence needed to support it, or where costs were included without genuine analysis of whether they qualified, the stakes are higher. A compliance check can result in significant repayment demands, interest charges, and in some cases penalties. HMRC has up to four years to open an enquiry into an R&D claim in most cases, and longer where there is reason to suspect fraud or negligence. The financial exposure from a poorly built claim does not disappear when the credit is paid.
There is also a less visible cost. A compliance check requires significant management time from the people who know the technical work, typically the same engineers and project leads whose time is most valuable to the business. A check that runs for six to twelve months and involves multiple rounds of correspondence is a material distraction.
There is no fixed timeline for an HMRC R&D compliance check. Straightforward cases can resolve within a few months. More complex cases regularly run to a year or beyond, and where matters escalate to appeal or tribunal, the process extends considerably further.
The variables that affect duration include the complexity of the technical work, the number of projects under review, how quickly the company can respond to HMRC’s information requests, and whether HMRC raises new questions at each stage or is moving towards resolution. The quality of the initial response is the single most controllable factor.
If a check escalates because agreement cannot be reached on the technical or financial substance, the duration extends considerably. What begins as a correspondence exercise can develop into a more involved process with multiple stages, each adding time and cost.
There is a pattern that becomes clear to anyone who has worked through multiple HMRC compliance checks. The claims that resolve quickly and cleanly are almost always the ones where the technical work was understood in depth from the start, where the advisor brought genuine engineering or scientific knowledge to the engagement, could identify qualifying activity that a purely financial review would miss, and built the documentation from that understanding rather than from what the team could recall in a single conversation.
That distinction matters. Advisors with in-house technical expertise, engineers and scientists working alongside tax specialists, can engage with a company’s R&D in depth without pulling the client’s own engineers away from their work for extended periods. When HMRC asks questions, the technical understanding that built the claim is available to answer them.
The claims that struggle are the ones where the technical narrative was assembled from what the R&D team could recall in an interview, without the depth of technical understanding needed to identify what genuinely qualified and why. When HMRC asks a follow-up question, the documentation either supports a clear answer or it does not.
This is not an argument for caution in what you claim. There is nothing conservative about claiming everything that legitimately qualifies. It is an argument for building claims on genuine technical understanding. When the basis is sound, the numbers follow. And when HMRC asks questions, the answers exist.
Acting quickly and methodically from the moment the letter arrives makes a material difference to how the check unfolds.
Read the letter carefully. The questions in a compliance check letter are usually specific. The temptation to respond broadly, covering everything that might be relevant, often produces a response that is long but not well targeted.
Engage your R&D tax adviser immediately. If your claim was prepared by a specialist, they should take the lead on the response. If you prepared the claim internally, obtaining specialist support at this stage is worth considering. The way the first response is structured sets the tone for everything that follows.
Gather the supporting documentation early. Payroll records, project records, technical reports, contracts with subcontractors, timesheets. The faster these can be assembled and reviewed, the better placed the response will be.
Be accurate. The instinct to frame responses as favourably as possible is understandable, but HMRC is asking specific questions and can cross-reference the answers. Consistency between the AIF, the tax return, the technical narrative, and the responses to a compliance check letter is what gives HMRC confidence to close the check. Inconsistencies, even unintentional ones, extend the process.
HMRC compliance checks on R&D tax claims are more common than they have ever been, and the rate is not falling. For businesses that claim R&D tax relief, the question worth asking now is whether the claim that was submitted would hold up to one.
That question has a straightforward answer if the claim was built properly. It has a much more difficult answer if it was not.
The standard worth building to is a claim that can be clearly explained to HMRC months or years after it was submitted, where the technical description is accurate, the costs are traceable, and the documentation was created during the work rather than assembled in response to a letter.
That standard is not about managing risk. It is about accurately representing work that genuinely qualifies and having the evidence to show it.
If you have received a compliance check letter, or want to understand how your current claim would hold up to one, speak to the Catalyst Solutions team. We work with businesses across the UK and have supported clients through every stage of the HMRC compliance process.
About the author
Dov Paluch is a director at Catalyst Solutions, a multi-disciplinary R&D tax advisory firm serving innovative businesses across the UK, South Africa, Australia and Germany. The Catalyst Solution’s team includes accountants, lawyers, engineers, and scientists and is built on the belief that the only R&D tax claims worth building are those you can confidently explain years later.
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