The UK R&D tax relief landscape has changed significantly over the past two years.

With increased HMRC compliance activity, mandatory additional information requirements, and greater scrutiny of claim methodologies, many companies are now asking a simple question:

“If HMRC reviews our claim, are we prepared?”

The reality is that not all R&D claims are prepared to the same standard.

While many providers focus on maximising the value of a claim, far fewer focus on ensuring the claim can withstand detailed technical and financial scrutiny if HMRC decides to open an enquiry.

Questions HMRC commonly asks:

When reviewing an R&D claim, HMRC often seeks evidence that demonstrates:

• How qualifying R&D activities were identified and assessed
• Why the projects met the legislative definition of R&D
• What technological or scientific uncertainties were encountered
• What contemporaneous evidence exists to support the claim
• How eligible expenditure was identified, calculated and documented
• What methodology was used to apportion staff time and project costs

These questions can quickly become highly technical, requiring detailed explanations of both the underlying R&D activities and the financial methodology supporting the claim.

Financial methodology matters

One area receiving increasing attention is how expenditure has been captured and quantified.

HMRC frequently asks companies to explain:

• How staff costs were attributed to R&D projects
• How subcontractor and externally provided worker costs were assessed
• What evidence supports the percentages used within the claim
• Whether intellectual property ownership and economic risk requirements have been considered correctly

A robust claim should be supported by a clear, documented methodology rather than broad assumptions or unsupported estimates.

Subcontracted R&D: A common source of confusion

One of the most misunderstood areas of the current R&D tax relief regime is the treatment of subcontracted R&D expenditure.

Many businesses have been told that subcontractor costs are either automatically claimable or automatically excluded.

In reality, the rules are considerably more nuanced and depend on factors such as who initiated the work, who bears the technical and financial risk, who retains the benefit of the R&D activities, and the contractual relationship between the parties involved.

As a result, businesses should be confident that their adviser can clearly explain not only whether subcontracted costs have been included or excluded, but also the technical and legislative basis for that treatment.

If your provider cannot articulate the rationale behind the position taken, it may be worth seeking clarification before a claim is submitted.

HMRC is increasingly scrutinising subcontracted R&D arrangements, particularly where contractual terms, project responsibilities and economic risk do not align with the treatment adopted within the claim. Ensuring these arrangements have been properly assessed can significantly reduce the likelihood of delays, enquiries, and disputed expenditure.

Key Tribunal Case Claimants Need to be Aware of

In Beer Express (BE) Ltd v HMRC, a wholesale drinks business from the North of England lost its appeal against HMRC’s decision to disallow R&D tax relief totalling approximately £490,000 across two claim years.

BE were advised by an R&D Tax Credit service provider, which identified several of the company’s operational projects as potentially qualifying for relief and prepared the claims on behalf of BE. When HMRC challenged those claims, the R&D tax credit service provider had abandoned BE as they became unavailable, resulting in BE defending its claim that it could not fully explain.

The Tribunal’s findings were damaging. The technical descriptions were considered vague where it shows cased high-level descriptions of the work carried out and not showing the information to meet the technological advancement and technological uncertainty criteria.

There was also no clear explanation of the technological baseline the company was working from. More importantly, there was no input from a competent professional with the technical knowledge to explain why the work qualified.

As a result, the appeal was dismissed in full.

This case is not an isolated incident. HMRC has significantly increased its scrutiny of R&D claims in recent years, and poorly evidenced claims are increasingly being challenged. The message is clear: R&D tax relief is a genuinely valuable relief, but it must be claimed correctly, with proper technical evidence and proper professional support.

Questions worth asking your current Service provider:

If you currently work with an R&D tax adviser, consider asking:

• How would you defend our claim if HMRC opened an enquiry tomorrow?
• What evidence should we be retaining throughout the year?
• What claim methodology has been documented for our business?
• How have you reduced the risk of delays, enquiries or penalties?
• What recommendations have you provided to improve future claims?

The quality of the answers may tell you a great deal about the strength of your current R&D process.

A different approach

At RDP Associates, we believe a successful R&D claim is not simply one that is submitted.

It is one that is technically robust, financially supportable, and prepared with HMRC scrutiny in mind from the outset.

Our focus is on helping businesses maximise legitimate R&D tax relief while implementing clear claim methodologies, strong supporting evidence, and practical processes that reduce compliance risk and improve the efficiency of future claims.

You focus on growing your business.

We focus on helping to ensure your R&D claim stands up to scrutiny.

If you would like a confidential review of your current R&D claim process or recent submission, we would be happy to discuss how your existing approach compares to current HMRC expectations, please contact Jenni at [email protected].