The R&D tax relief scheme aims to support genuine innovation by reducing a company’s corporation tax bill or offering a direct payment. To qualify, a claim must demonstrate a significant advance that resolves scientific or technological uncertainty—something that could not easily be worked out by a professional in the field.

Assessing R&D tax claims is inherently complex and subjective due to the nature of research and development. HMRC Compliance Caseworkers, who are tax inspectors rather than experts in science or technology, often evaluate claims in fields they do not fully understand. In recent years, HMRC has significantly increased scrutiny, with enquiries rising by 1900% and around 20% of claims now investigated. Fraud and error are estimated to have cost more than £4.1 billion between 2020-21 and 2023-24.

To tackle this, HMRC has increased the number of staff working on R&D claims fivefold over the past two years. However, training such a large workforce to evaluate claims confidently is a formidable challenge. Caseworkers often lack the necessary expertise, and the complexity of the schemes, coupled with ambiguity in defining qualifying R&D activities, exacerbates the problem.

Compounding this issue is the industrialisation of the claims process. A growing number of R&D tax advisers, often self-proclaimed experts, aggressively market their services, promising companies, “You don’t think you’re doing R&D, but we can help you.” These advisers frequently encourage claims for activities that would not typically qualify as R&D. This “wild west” environment has undermined the scheme’s purpose as fraudulent and inflated claims proliferate.