Engineering Company: Dispute With HMRC for R&D Tax Credeit Relief

This case study concerns an engineering company in a dispute with HMRC, concerning its claim for R&D tax credit relief, in which HMRC’s original decision was later successfully overturned in full.

C&B Partners Limited helped this engineering firm overturn the original HMRC rejection, of their claim for R&D relief, and cancel a proposed penalty, without going through HMRC’s ADR, formal Internal Review or applying to the Tribunal.

The background

An elite UK SME engineering company, widely respected for its complex, heritage-sensitive and prestige international portfolio of project, that found itself blindsided by HMRC.

Despite filing a Corporation Tax amendment fully supported by a fully detailed professional R&D technical report and narrative, HMRC opened a compliance check.

The enquiry case undertaken by a team in HMRC noted for dealing with all enquires by correspondence only.

This team operated a process, task driven approach to enquiry work.

During which multiple unnamed HMRC caseworkers would be involved at each new interaction in the enquiry. Meaning no one caseworker had ownership, or any overall responsibility or accountability for the enquiry.

The HMRC enquiry lasted eight months and included three HMRC letters, with the company receiving a shock:

• A full rejection of their £68,070 claim

• A demand to repay the relief claimed

• And a proposed penalty of £10,602 for alleged carelessness

The client’ was referred to C & B Partners Limited when the pressures of dealing the HMRC team and procedural confusion became too much to manage alone.

Our response and expertise

When we took over, we began with forensic line-by-line review of the enquiry, correspondence trail, technical reports, and all referenced HMRC guidance.

We identified multiple material failings and errors in due process, including:

• An invalid opening under Paragraph 24 with no meaningful notice

• The opening letter in the enquiry demanded a same day reply

• Repeated loss of submitted evidence

• An unexplained reference to an unrelated third party in HMRC’s communications on the matter, effectively misidentification of the competent professional

• Use of outdated R&D Guidelines

• Misquoting of those outdated R&D Guidelines

• Incorrect use of terms like “withdraw your claim”, which are not a legally supported action

Additionally, we identified procedural errors including –

• A Closure Notice issued before a decision letter was properly responded to by the client

• The absence of a legally competent closure decision

• No documented appeal or statutory review trigger

• A proposed penalty based on unfounded opinion, not evidence

We prepared a robust response grounded in legal reasoning, procedural fairness, and detailed technical rebuttals, backed by additional evidence.

We also cited case law, quoting from the relevant First tier tax tribunal cases and directly challenged HMRC's use of copied “stock paragraphs”

that were irrelevant or misapplied.

Resolution achieved

Following receipt of our letter, HMRC fully reversed their position in writing.

• The R&D claim was reinstated in full

• The £42,063 repayment demand was withdrawn

• The £10,602 penalty was cancelled

• HMRC confirmed the enquiry was concluded, and a closure notice would follow

• A formal apology was initiated via HMRC's complaints team

All this was achieved without needing Tribunal or ADR.

For the company, this was more than just a financial win. It was:

• Preserved critical working capital at a time of active project delivery

• Avoided reputational harm linked to an inaccurate penalty or rejected claim

• Restored internal confidence in claiming legitimate reliefs

• Protected the relationship between the client and their original advisers

Points for reflection for the reader

This case highlights three critical insights for advisers and claimants alike:

1. HMRC’s decision is not the end.

Many disallowed R&D claims stem from flawed processes, assumptions, inexperienced review, or gaps in technical understanding. Flawed HMRC decisions can and should be challenged, but knowing if this is the case, when and how to do so effectively takes seasoned judgement.

2. Silence is not Closure.

If a Closure Notice is not issued, or is incorrectly issued, the enquiry may remain open, invalid, or be procedurally vulnerable. Knowing when this is the case takes detailed knowledge.

3. The competent professional must be respected.

HMRC is obliged to assess their expertise fairly and objectively, not dismissively or with pre-formed judgments. The real skill here lies in presenting that expertise with finesse: in a way that informs and does not antagonise inexperienced HMRC caseworkers, and serves the needs of the case.

The importance of helping businesses, and their advisers navigate complex, protracted, challenging tax disputes cannot be overstated.

This need to be done with calm authority.

Legal rigour, and proven experience. And, always focused on achieving the right outcome, quickly; through principled solutions.