HMRC has tightened its oversight of the scheme in recent years, with error and fraud rates falling sharply to 5.9%. This is a positive outcome, but one that has come at a cost. Businesses are navigating increasing documentation requirements, more frequent enquiries, and a greater expectation that they can provide audit-ready evidence at every step. In this new environment, success depends on embedding a culture of compliance across the organisation.

Making compliance a core part of your R&D process

The R&D tax relief landscape has shifted significantly in recent years, with HMRC’s 2022–23 statistics marking a turning point. For the first time since the scheme was introduced in 2000, the number of submitted claims fell sharply, down 21% from the previous year. This drop is closely linked to tighter compliance requirements, most notably the introduction of the Additional Information Form (AIF) in August 2023. It may also be linked to the introduction of the Claim Notification Form (CNF); far from a formality, the CNF has created another hurdle for first-time claimants or those returning after three years, and has already been challenged in practice.

For a long time, many companies treated R&D relief as a once-a-year exercise, completed alongside their accounts. That approach no longer works in today’s environment, where evidence and oversight are expected throughout the year rather than at the point of submission. Enquiries are now more frequent, evidence demands are more detailed, and businesses that leave compliance to the last minute face growing risks of delays, disputes, or even rejected claims.

The bigger challenge is that compliance demands a shift in behaviour, not just new forms or extra steps. It is about embedding a mindset where record-keeping, documentation, and internal governance are part of the everyday R&D process rather than a rushed exercise at the end of the year.

The practical challenges

Businesses of all sizes face the same fundamental obstacles and many lack the systems to capture project details in real time, meaning evidence is often reconstructed months after the work has finished. Others struggle with staff awareness: technical teams may not know what qualifies as R&D under HMRC’s definition, while finance teams may struggle to extract the relevant details to support their claim.

This gap between HMRC’s expectations and what companies are equipped to deliver is where the real risk lies. The problem is not that businesses are deliberately cutting corners, but that they are unprepared for the standard of evidence now required. This was clearly demonstrated in Hadee Engineering Co Ltd v Revenue & Customs (2020), where a central theme of the case was Hadee’s failure to provide sufficient, credible, and consistent documentary evidence to support its claims. The tribunal described the company’s explanations as “unreliable, vague and at times inconsistent,” and the judgment stands as a warning that remains highly relevant today. Without stronger processes in place, even genuine innovators can find themselves exposed to unnecessary risk when their claims come under scrutiny.

What a culture of compliance looks like today

A true culture of compliance is one where good practice is designed into everyday operations. Rather than being treated as an annual administrative burden, compliance becomes the natural output of how a business runs its R&D projects. In a culture of compliance, documentation is captured in real time, and teams are armed with a clear understanding of what qualifies as R&D. Governance structures ensure that claims can withstand scrutiny without the need for frantic last-minute preparation.

For scaling SMEs, this approach can save enormous amounts of time and stress, especially when resources are stretched. For larger enterprises, it brings consistency across teams and geographies, reducing the risk of errors in complex claims. In both cases, it allows businesses to protect their innovation pipeline while meeting HMRC’s expectations with confidence.

Why methodology matters

One overlooked aspect of compliance is the methodology used to prepare claims. Many providers, particularly when working with large datasets, adopt a “top-down” approach whereby they estimate costs per department and apply percentages across teams. While this can produce a quick result, it often relies on broad assumptions and shortcuts that eventually require deeper checks if HMRC raises specific questions.

Instead, a “bottom-up” approach, supported by technology, allows businesses to manage large volumes of data in a fully auditable way. This means every cost is directly linked back to source data and project activity, creating a clear line between the evidence and the outcome. This approach avoids the need to revisit claims under pressure and ensures compliance is embedded from the start rather than retrofitted later. In practice, this is what sets more innovative methodologies apart from traditional, manual processes still used by many advisors.

Why expert support matters

Some companies, including accountancies that previously supported R&D services, are now finding it increasingly difficult to maintain the necessary expertise. The process is complex but infrequent, and recent changes mean that knowledge that may have been sufficient in the past is often now outdated. As a result, many businesses are turning to external experts, who can guide them on what qualifies, ensure claims are structured correctly, and provide reassurance that documentation will withstand HMRC scrutiny.

When paired with a technology-led, bottom-up methodology, this support gives businesses confidence that their claims are defensible, comprehensive, and directly traceable to the data, a standard that is increasingly vital as HMRC deepens its assessments.

Why this matters for UK innovation

The UK cannot deliver on its innovation ambitions if businesses are put off claiming R&D tax relief because of red tape or fear of enquiries. Compliance is often seen as a hurdle, but in reality, it is what makes innovation sustainable. When companies have the right processes in place, they can claim with confidence, reinvest more predictably, and put their energy back into building new ideas rather than firefighting disputes.

HMRC has already made progress in reducing errors and fraud across the scheme, a positive step that demonstrates how tighter oversight can work in practice. The real challenge now is making sure genuine innovators are supported rather than discouraged by additional complexity. Luckily, digital solutions exist to help businesses meet these enhanced compliance requirements. Embedding compliance through daily processes and auditable methodologies ensures that R&D claims withstand scrutiny without delaying innovation. With the right systems, advisors, and technology, compliance becomes not a burden, but the foundation for robust, future-proof innovation.

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