HMRC is tightening its approach to research and development (R&D) tax relief. More letters, more questions, more compliance checks. For many small and medium-sized enterprises (SMEs) that rely on R&D tax relief to support cashflow, that can feel unsettling – especially if you have claimed in good faith and never heard from HMRC before.
The direction of travel is clear. HMRC’s latest R&D tax credit statistics (HMRC, 2025) show an estimated 46,950 claims for 2023/24, a 26% fall on the previous year. Claims under the SME scheme in particular have dropped, as higher scrutiny and less generous rates take effect. Meanwhile, HMRC’s approach to R&D tax reliefs (HMRC, 2024) reports £441m of incorrectly claimed relief identified through compliance checks in 2023/24.
Against that backdrop, HMRC is ramping up both formal compliance checks and softer “nudge” campaigns, where letters encourage businesses to review their claims before an inquiry opens. With the merged R&D scheme now live for accounting periods starting on or after 1 April 2024, and further changes on the horizon, it is more important than ever to understand what HMRC expects – and how to protect your position if your claim is selected for compliance checks.
Why HMRC has stepped up compliance checks
The R&D regime has grown into a major cost for the Exchequer. HMRC’s statistics show tens of thousands of claims every year, with billions of pounds in relief going to UK companies. That is intentional – the policy is designed to encourage innovation – but it also creates more room for error and abuse.
HMRC’s own analysis confirms the scale of the problem. In 2023/24, it estimates that £441m of R&D tax relief was claimed incorrectly through error or fraud, identified through compliance checks and other work. That is a strong incentive for HMRC to keep increasing staffing, data analytics and risk profiling around R&D claims.
For SMEs, this means the following.
- Higher inquiry risk: Even compliant businesses can be picked up by risk rules or random sampling.
- More detailed questions: Compliance checks are increasingly technical, drilling into how projects meet the R&D definition and how costs were calculated.
- Less tolerance for weak files: A claim might be technically valid, but if you cannot show clear supporting evidence, HMRC is more likely to deny part or all of the relief.
The good news is that genuine, well-documented R&D projects should still stand up to compliance checks – but only if the supporting records are in place.
What HMRC nudge letters and inquiry notices look like
HMRC now uses several tools to test R&D claims, and not all of them are formal compliance checks. Many businesses first see a “nudge” letter, often framed as a request to confirm that you meet the R&D conditions or have checked your claim thoroughly.
A typical R&D nudge letter might:
- ask you to review specific claims or years and confirm whether amendments are needed
- highlight common errors in R&D claims and ask you to tick boxes or complete a short questionnaire
- warn that HMRC may open compliance checks if you do not respond by a certain date.
By contrast, a formal compliance check (an inquiry) comes with a clear notice under HMRC’s legal powers. It usually asks detailed questions and requests supporting documents, and it may cover wider corporation tax issues as well as R&D. Ignoring a nudge letter increases the chance that HMRC will move to full compliance checks.
If you receive any kind of R&D letter from HMRC, we suggest you do the following.
- Identify the type of letter: Check whether it is a general nudge or a formal notice of compliance checks under schedule 36.
- Confirm the scope: Note which periods and which R&D claims HMRC is looking at.
- Gather your evidence: Pull together project write-ups, time records, cost schedules and emails while memories are still fresh.
- Get advice early: Speak to your usual adviser or to us before replying; a quick, accurate response can often prevent an inquiry from escalating.
How the merged R&D scheme affects compliance checks
For 2025/26, many SMEs will be making their first claims under the merged R&D expenditure credit (RDEC)regime. The merged scheme replaces the old SME and RDEC routes for accounting periods starting on or after 1 April 2024 and provides a taxable expenditure credit, generally at 20% of qualifying R&D costs, for most businesses. HMRC guidance on the merged R&D scheme (HMRC, 2025) sets out the detailed rules.
From a compliance checks perspective, a few points matter for SMEs.
- Additional information forms: You must now file a detailed additional information form before submitting your R&D claim. This gives HMRC much more project-level data to risk assess.
- Project descriptions: HMRC expects clear explanations of scientific or technological uncertainty, not just commercial goals or routine product development.
- Linked and group companies: The merged scheme sits alongside enhanced R&D intensive support (ERIS) for certain loss-making SMEs, which adds further checks on how group expenditure and R&D intensity are calculated.
These changes do not automatically mean your claim will face compliance checks, but they do mean HMRC has better information to decide which claims to look at – so weak or generic submissions are more likely to be challenged.
Building the evidence file HMRC expects to see
The best defence in any compliance checks is a clear, consistent evidence trail. That starts long before you file the R&D claim. We encourage clients to assemble a standing “R&D file” for each project, including the following.
- Project overview: A short summary of the scientific or technological advance you were seeking and the uncertainty you faced.
- Technical documentation: Design documents, test plans, trial reports, code repositories, lab notes or prototypes that show the work carried out.
- Time records: Timesheets, project codes or other records showing who worked on R&D tasks and for how long.
- Cost support: Invoices, payroll reports and general ledger extracts that tie directly to the figures in your claim.
- Decision records: Board minutes, internal memos or email chains that show why you took particular technical approaches.
For each R&D claim, you should also keep copies of the corporation tax computation, the additional information form and the narrative submitted to HMRC. Try to store everything in one place, with clear filenames and dates.
If HMRC opens compliance checks, this preparation makes a huge difference. Instead of scrambling to recreate history, you can respond calmly, sharing focused evidence that answers HMRC’s questions directly. That reduces disruption to the business and gives you a much stronger footing in the event of a disagreement.
What we know so far about advance assurance
Alongside stricter compliance checks, the government has consulted on reforms to its R&D advance assurance programme during 2025. Proposals have included expanding advance assurance, and potentially making some form of pre-approval mandatory for higher-risk or first-time claimants, with the aim of reducing error and fraud while giving genuine claimants more certainty.
Although nothing is final yet, it is sensible to assume that more pre-claim scrutiny is coming, not less. In practice, that means SMEs should start acting as if their R&D claims will be reviewed from the outset, rather than treating compliance checks as a remote possibility.
In our experience working with SMEs, the businesses that cope best with compliance checks are those that follow these processes.
- Involve finance and technical teams early: Tax, finance and engineers should agree which projects are in scope before year end.
- Standardise documentation: Using a simple internal template for project write-ups keeps claims consistent and easier to review.
- Review advisers regularly: If a previous agent prepared aggressive claims or cannot explain their workings, consider a second opinion before HMRC does.
We can support you with practical reviews of past and future claims, helping you understand where you stand before HMRC starts asking questions. You can read more about how we work with owner-managed businesses on our business services page.
Bringing it together and planning your next steps
R&D tax relief remains valuable for innovative SMEs, but the bar has moved. HMRC is investing in more compliance checks, more specialist teams and better data tools. At the same time, fewer claims are being made, and a significant proportion of those that remain are found to be wrong. The days when an R&D claim could be treated as an easy win are over.
For 2025/26, the merged scheme, new forms and possible advance assurance reforms all point in the same direction: more rigorous testing of R&D claims. If HMRC opens compliance checks into your claim, you need to be ready to explain, in plain language, what R&D you carried out, why it qualifies and how every figure in your submission was calculated. That is difficult to do if you have not kept records as you go.
If you are worried about HMRC compliance checks on R&D tax relief – or simply want to sense-check historic claims prepared by another adviser – we can help. We combine tax and technical expertise with a practical understanding of how SMEs actually run projects. To talk through your situation, get in touch with us and ask about support with R&D tax relief compliance checks.