HMRC Enquiry: Why They Happen, How Long They Last, and How to Prepare Your Response Correctly
It’s not as daunting as you may think!
An HMRC enquiry can feel daunting — but if your R&D tax relief claim has been prepared correctly, it does not need to be a cause for concern. Understanding why enquiries happen, what HMRC typically focuses on, and how to prepare robust evidence will significantly reduce risk and disruption.
Why Has My R&D Claim Been Selected for Enquiry?
HMRC does not always disclose the specific reason for opening an enquiry. However, in our experience, enquiries are most commonly triggered by one or more of the following:
Errors or inconsistencies in the CT600
Cost calculations that are unclear or poorly explained
A technical narrative that does not clearly demonstrate a technological advance or technical uncertainty
A high‑value first‑time claim
Claims made by companies operating in sectors not traditionally associated with R&D
A robust claim, supported by clear technical justification and accurate calculations, significantly reduces the likelihood of penalties. By contrast, poorly prepared claims can lead to adjustments, extended enquiries and, in more serious cases, penalties for careless or deliberate behaviour.
How Long Does an HMRC Enquiry Take?
Enquiries vary widely in scope and duration.
Straightforward queries, often focused on a single point, may be resolved within two to four weeks once sufficient information has been provided.
Full compliance enquiries are far more involved and can last six months or longer, depending on the complexity of the claim and the quality of the supporting evidence.
When an enquiry comes in, our expert team supports clients throughout the process at no additional cost, helping to respond accurately, proportionately, and efficiently.
How HMRC Reviews R&D Costs
Employee Costs
Employees generally fall into one of two categories:
Directly qualifying activities — for example, an engineer designing and developing a new process, component or system.
Indirectly qualifying activities — such as staff supporting the R&D project (e.g. supervisors, project managers, or machine operators).
Indirect activities are frequently overlooked but may still qualify in part. HMRC will expect any time apportionment to be reasonable, justifiable and consistent with the technical narrative.
For new or early‑stage claims, time is often apportioned retrospectively. However, where a company has been claiming for three or more years, HMRC increasingly expects contemporaneous records to be in place.
Allocating 100% of an individual’s time to R&D will almost always attract scrutiny and should only be done where it is genuinely accurate.
If employee expenses are included, HMRC may request evidence of both the expense itself and proof that it was reimbursed to the employee.
Subcontractor Costs
Subcontracted R&D can qualify where the subcontractor is carrying out work that forms an essential part of your wider R&D project.
Unconnected subcontractors — 65% of qualifying costs
Connected subcontractors — 100% of qualifying costs
Care must be taken to distinguish between qualifying subcontracted R&D and excluded services. For example, where a third party manufactures a component without contributing to the R&D itself, the R&D activity is generally deemed to begin only once that component has been delivered. In such cases, the manufacturing cost is unlikely to qualify.
Externally Provided Workers (EPWs)
EPWs include agency workers or individuals supplied by another company but working under your direction.
To qualify:
The individual must be paid via PAYE by the supplying company
Evidence of PAYE must be available
Self‑employed individuals do not qualify as EPWs
Reimbursed expenses may be included provided clear evidence exists. Where eligibility cannot be demonstrated, HMRC is likely to disallow these costs. Verification of EPWs forms a standard part of our review process.
Consumables
Consumables are items used up or transformed during the R&D process. These may include:
Raw materials and components
Power, heat and light used directly in R&D
A common area of confusion arises between consumables and subcontracted costs. For example:
A component designed by you but manufactured externally is usually treated as a consumable
A component designed and manufactured by a third party is typically subcontracted and may not qualify
Correct classification is critical, particularly during an HMRC enquiry.
Demonstrating Qualifying R&D Activity
HMRC requires clear evidence that:
The project sought a scientific or technological advance, and
There was genuine technical uncertainty that could not readily be resolved by a competent professional.
Activities that are challenging, time‑consuming, or commercially risky do not automatically qualify. Routine development, optimisation, or “business‑as‑usual” work is unlikely to meet the criteria.
As part of our due diligence, we remove non‑qualifying activities even where they may initially appear to be R&D. This ensures claims remain robust and defensible under enquiry.
Evidence HMRC Will Expect to See
During an R&D enquiry, HMRC will ask for contemporaneous evidence that the R&D activity took place and that the costs claimed relate directly to that activity.
Evidence of the R&D Work
HMRC will often request documentation demonstrating what was done, when it was done, and why it involved technical uncertainty. This may include:
Emails discussing technical problems, failures, or design decisions
Project plans, timelines or task breakdowns
Engineering drawings, CAD files, schematics or revisions
Test plans, test results, trial data and failure reports
Photographs or videos of prototypes or testing setups
Software repositories, development logs or version histories
Design change records and technical meeting notes
The objective is not volume, but clarity — showing the journey through uncertainty, including iterations, failures and eventual resolution.
Who Was Involved and When
HMRC will also want to understand:
Who was involved at each stage of the project
The role each individual played
Which technical uncertainties were they working to overcome
Being able to map people to activities and uncertainties is essential, especially where costs have been apportioned.
Financial Evidence and Proof of Payment
HMRC will scrutinise the financial basis of the claim, often requesting:
Invoices for subcontractors, EPWs, consumables, software and utilities
Payroll records and PAYE summaries
Time‑apportionment workings and assumptions
Bank statements showing payments made
Enquiries can be extremely detailed. In one case, HMRC requested over 1,000 invoices relating to a single R&D claim. Through careful negotiation and clarification of relevance, this was reduced to 150 invoices, illustrating both the scale of HMRC’s initial requests and the importance of experienced representation.
EPWs and Expenses
For EPWs, HMRC may request more than invoices alone, including:
Evidence of PAYE operated by the supplying company
Proof that expenses were reimbursed
Supporting bank records — in some cases, extending to proof of payment to the worker
Where documentation cannot be produced, these costs are often removed from the claim.
Why Preparation Matters
HMRC enquiries are rarely about a single missing document. They focus on whether the overall technical and financial narrative is consistent, credible, and well-evidenced.
Claims supported by:
Clear explanations of the technical uncertainties
Logical mapping of people to activities
Accurate, transparent cost calculations
Organised and accessible supporting documentation
They are far more likely to be resolved quickly and with minimal disruption.
Effective preparation does not begin when an enquiry starts — it begins when the claim itself is prepared.
If you have had the dreaded letter from HMRC and you (or even your agent) don’t know where to start, we have experts with many years of experience dealing with HMRC and can help you through the process.
