Focus on HMRC ISBC C&P caseworkers

In recent years, HMRC has significantly ramped up its scrutiny of Research & Development (R&D) tax relief claims. A dedicated team within Individuals and Small Business Compliance (ISBC) – the Campaigns & Projects (C&P) unit – now handles a large volume of compliance checks, reflecting a shift towards a more systematic and enforcement-led approach. Below, we outline the latest updates on HMRC’s guidance, key triggers for enquiries, areas of scrutiny, enforcement trends, and recent tribunal decisions.

Latest updates to HMRC’s guidance and compliance process

Mandatory additional information form 

Since August 2023, all R&D claims must be submitted digitally with a new Additional Information Form (AIF). HMRC introduced this to ensure claims contain enough technical and financial detail to allow for proper risk assessment. Previously, nearly half of claimants provided little to no supporting documentation, making it difficult for HMRC to verify eligibility. This added layer of disclosure helps HMRC process and assess claims more efficiently, making it essential for businesses to ensure their submissions are clear, accurate, and well-documented.

Advance notification and named officer requirement For accounting periods starting on or after April 2023, certain businesses—such as first-time claimants or those returning to R&D relief after a long break—must pre-notify HMRC of their intention to claim. From August 2023, claims must also be signed off by a senior officer of the company and include details of any agent involved in preparing the claim. This measure is aimed at preventing unauthorised claims and ensuring accountability, while also allowing HMRC to quickly identify any advisors who may be linked to high-risk or non-compliant claims. 

Restrictions on agent payment “nominations” To tackle fraud, HMRC has banned the assignment of R&D tax credit payments to third parties. From late 2023 into 2024, new rules have been introduced to ensure that payments go directly to the claimant company’s own bank account. This change was driven by HMRC’s findings that over 90% of fraudulent or high-risk claims involved nominee bank accounts. From April 2024, no new assignments of R&D credit entitlements to third parties will be allowed, further tightening security around the relief. 

New compliance guidelines In October 2023, HMRC published its Guidelines for Compliance (GfC), a detailed document to help businesses understand what qualifies as R&D and avoid common mistakes. This is HMRC’s most comprehensive guidance since the BEIS Guidelines, offering clarity on: 

• How to identify eligible R&D activities

• The role of a competent professional in the claim

• Record-keeping expectations

• How HMRC interprets complex areas of R&D tax relief

These guidelines, most recently updated in January 2025, serve as a valuable resource for companies looking to make well-substantiated claims and minimise the risk of compliance challenges. 

Volume compliance model – The ISBC C&P approach 

A major shift in HMRC’s compliance strategy came in mid-2022, when most SME R&D tax enquiries were reassigned to the ISBC C&P team. This unit operates on a high-volume, task-driven, rapid enquiry turnaround model, using standardised processes and risk-based assessments to check claims efficiently. Companies that have dealt with this team describe an enquiry process that start at zero and develops into 100mph in the blink of an eye.

By the end of 2023, the proportion of R&D claims being investigated had risen from around 1% to 20%—a sharp increase. This was made possible by a significant expansion in HMRC’s compliance staffing, with over 500 caseworkers now reviewing R&D claims (up from just 100 in 2020/21). However, while this system is designed to detect more errors, it has faced criticism for being overly rigid. 

Many businesses and advisors have reported that caseworkers lack the necessary technical training to properly assess claims, leading to inconsistent decisions and unnecessary challenges. HMRC has acknowledged these concerns and is working to improve training and case allocation.

In response to complaints, HMRC has stated that more complex cases will be referred to the Wealthy and Mid-sized Business Compliance (WMBC) R&D team, rather than being processed under the standard ISBC model. However, issues persist, and many businesses continue to experience difficulties navigating the compliance process.

Education and compliance action plan 

HMRC’s strategy is focused on prevention, education, and enforcement. To prevent errors and fraud, HMRC has been reaching out to businesses in sectors where genuine R&D is less common (such as care homes, personal fitness, retail, and hospitality) to warn them against filing questionable claims. To promote compliance, HMRC introduced an R&D professional bodies mailbox in early 2024, allowing tax institutes to report concerns about aggressive or misleading advisor practices. To respond to non-compliance, a new R&D Compliance Action Plan is set to be published in late 2024, outlining further measures to detect and deter fraudulent or inaccurate claims. 

Common triggers for an R&D enquiry 

With one in five claims now under review, HMRC uses a combination of random selection and risk-based criteria to decide which claims to investigate. The most common triggers include: 

1. Inconsistencies in financial data 

If the financial figures in an R&D claim don’t match up with corporation tax returns, company accounts, or PAYE records, this raises a red flag. For example, claiming more in R&D expenses than what appears in the accounts or costs that don’t align with the business’s size or activities is likely to prompt an enquiry. 

2. Weak or vague documentation A claim with poorly written technical descriptions or missing explanations on how the project meets R&D criteria is a major red flag. Since August 2023, claimants are required to submit an AIF with clear project details. If this form is incomplete or inconsistent (for example, listing three projects but only describing two), HMRC may reject the claim outright. 

3. Large fluctuations in R&D spending 

A sudden, significant increase in R&D expenditure compared to previous years—without a clear explanation—can trigger scrutiny. Similarly, if a company amends a past return to significantly boost an R&D claim, HMRC may question what new information has come to light. 

4. High-risk sectors 

Some industries are under greater scrutiny due to a history of non-compliance. While HMRC does not publish a formal list, it has specifically contacted businesses in sectors such as childcare, care homes, fitness, and retail, where R&D activity is less common. 

5. Advisor’s track record 

If a claim was prepared by an R&D consultant or tax agent known for submitting questionable claims, it is more likely to be reviewed. This is why HMRC now requires claimants to disclose the details of any advisor involved in preparing their submission. 

6. Other tax compliance issues 

An ongoing corporation tax, VAT, or PAYE enquiry may prompt HMRC to review any R&D relief claimed in the same tax return. 

Key areas of scrutiny in R&D claims 

When an enquiry is opened, HMRC caseworkers (especially in the ISBC C&P team) tend to focus on several high-risk aspects of the claim: 

• Qualification of R&D projects: The fundamental question is always whether the activities meet the definition of qualifying R&D. HMRC will scrutinise the technological or scientific advance claimed and the uncertainty that was addressed. A key part of this is assessing the presence of a “competent professional” in the field who can credibly testify that the problem was not readily solvable. If a company cannot demonstrate that an appropriately skilled professional oversaw or described the work, HMRC may doubt that real R&D took place. Recent tribunal cases underscore this point: for example, in Flame Tree Publishing v HMRC (2023) the claimant’s appeal was dismissed largely because neither witness had the necessary software expertise to be a competent professional, leaving the tribunal unconvinced that any genuine technological uncertainty was resolved. On the flip side, in Get Onbord Ltd v HMRC (2023) the taxpayer prevailed after persuading the tribunal that their lead engineer – though informally trained – was in fact a competent professional who provided credible testimony on the R&D work. Ultimately HMRC will examine who conducted the work and whether that person’s background and documentation prove a true advance in knowledge was sought.

• Subcontracted and client-funded work: HMRC pays close attention to the nature of the R&D funding and contracts, because it affects which scheme is applicable (SME vs. RDEC) and eligibility of costs. In particular, “subsidised” or “contracted out” R&D is a hot issue. Under the law, if an SME’s R&D project was funded by someone else (e.g. a customer paid for a project deliverable, or a grant subsidized the costs), the expenditures might not qualify under the more generous SME tax credit scheme. HMRC compliance teams have been interpreting client payments for projects as potentially disqualifying subsidies in some cases. This means companies doing R&D as part of delivering something to a client often face questions like: Did the client’s payment directly or indirectly cover the R&D costs? and Were you hired to perform R&D on the client’s behalf (contract research)?. These determinations are complex and HMRC tends to err on the side of denying SME relief if it believes the R&D was effectively funded by a third-party contract. However, recent tribunal decisions (discussed below) have pushed back on HMRC’s broad interpretation here. Nevertheless, claimants should expect detailed queries on any projects done for customers or supported by grants, to document that their own company bore the risk and cost of the R&D. Eligible Cost Categories: Another focus is whether the costs claimed are truly allowable R&D expenses. HMRC will check that all claimed costs correspond to qualifying activities (for example, staffing costs, consumables and software, subcontractor or externally provided workers costs for R&D). They often scrutinise categories that can be prone to error or abuse, such as travel or training costs, production trials, or capital expenditures, which are generally not claimable as R&D costs. An example is the “paid expenditure” rule for subcontracted R&D: SME claims can only include subcontractor costs that have actually been paid (not just accrued). HMRC may ask for proof of payment to subcontractors. In one tribunal case (Tills Plus Ltd v HMRC), HMRC challenged whether certain subcontractor fees were paid by year-end (as required); the tribunal ultimately found the payments had been made, satisfying that rule, although the claim still failed on other grounds. Key areas of cost scrutiny include: ensuring staff time is pro-rated correctly to R&D (versus non-R&D work), verifying any externally provided workers are claimed at the correct rate (65% cap for unconnected EPWs), and confirming that any claimed subcontractor or agency costs are not disqualified (e.g. if the subcontractor is a connected party, the SME scheme rules differ). HMRC may also verify that consumable items were actually consumed in R&D and not used in products sold, and that any prototypes claimed were built for R&D purposes, not as final marketable products.

• Record-keeping and supporting evidence: Given the new emphasis on the AIF and compliance, HMRC expects claimants to maintain contemporaneous documentation of their R&D projects. During an enquiry, documentation is key – project plans, design documents, test results, technical problem logs, timesheets, etc.- all help demonstrate the R&D work and related costs. HMRC’s Guidelines for Compliance explicitly encourage keeping detailed records and even suggest that doing so will make completing the mandatory AIF easier. If a claim cannot withstand detailed questioning, for instance, if the claimant or their consultant struggles to answer HMRC’s technical questions or provide evidence, then HMRC is more likely to disallow some or all of the relief. In short, caseworkers are looking for a well-documented narrative that the company knew the R&D criteria and applied them correctly. Any hint that a claim was made with generic or copied descriptions, or without proper basis, will draw scrutiny. Sector-specific issues: HMRC has indicated that some sectors have particular patterns of error. For example, claims from industries like construction, agriculture, or food and drink might be scrutinized to ensure the work isn’t just routine adaptation of existing methods. Software development claims might be examined for the distinction between novel R&D vs. simply using known techniques. Claims involving drug development or clinical research might get questions about regulatory trial phases (to ensure only qualifying investigative work is claimed, not commercial testing). While HMRC hasn’t published a list of “focus areas,” they are clearly using SIC codes (industry classifications) to risk-score claims. If your sector is on HMRC’s radar, expect more detailed questions relevant to typical issues in that field. Overall, the ISBC caseworkers follow a checklist-driven approach, and if any aspect of a claim appears outside the norm or potentially non-compliant, it will be zeroed in on. It’s important for companies (and their advisors) to anticipate these areas of interest and prepare robust explanations and evidence in advance. Trends in enforcement actions and penalties HMRC’s tougher stance on R&D tax relief has led to more active enforcement and a willingness to impose penalties for incorrect claims, especially where they suspect a lack of reasonable care or deliberate exaggeration: Dramatic increase in compliance checks: As noted, HMRC has expanded R&D compliance resources and is checking roughly 1 in 5 claims now. In 2023/24, about 9,700 claims were subjected to compliance checks (around a 17% enquiry rate) compared to only a few hundred a couple of years prior. This means many more companies are receiving enquiry letters, and HMRC is actively following up on risk indicators rather than rubber-stamping claims. The high-volume ISBC C&P model is behind this jump, supplemented by advanced risk assessment using the new required information. HMRC has stated these interventions range from “high-volume targeted activity” (like mass audits of claims fitting certain risk profiles) to criminal investigations in cases of blatant fraud. Blocking and delaying payments: HMRC has implemented stricter pre-payment controls for payable R&D tax credits. They introduced additional payment verification checks, which has meant some refunds take longer as claims are vetted. HMRC still aims to pay most SME credit claims within 40 days, but higher-risk cases can be held up beyond that. In mid-2022, there were even temporary suspensions of some R&D payouts to investigate suspect claims (e.g. a wave of suspected fraud in April 2022 prompted a pause in processing certain refunds). According to HMRC, by 2023 they had blocked £85 million in fraudulent R&D claims and even made several arrests (9 people) connected to R&D fraud schemes. This demonstrates a clear trend toward enforcement: HMRC is willing to freeze payments, launch criminal probes, and punish bad actors to protect public funds.

• Use of “Nudge” letters and disclosures: Another tool HMRC has used is issuing “nudge letters” to encourage voluntary compliance. For instance, companies in industries deemed at risk of non-compliance have received letters advising them to review the R&D criteria and, if necessary, amend or withdraw incorrect claims. Beyond nudges, in January 2025 HMRC launched a new R&D Disclosure Facility for companies to self-report and correct past claim errors. This online facility is intended for non-deliberate mistakes in out-of-time periods, allowing taxpayers to disclose inaccuracies, repay any excess relief, and compute interest and penalties within a streamlined process. HMRC emphasises that truly deliberate errors (fraud) should go through the contractual disclosure process instead. The introduction of this facility suggests HMRC is seeing a lot of historical mistakes and is giving companies a chance to come clean (with reduced penalties) before more severe action is taken. It’s a sign of the times: enforcement is ramping up, but HMRC is also promoting self-correction as part of the compliance culture. Penalties for incorrect claims: When HMRC finds an R&D claim is overstated, they will not only recover the excess relief (plus interest) but may also levy penalties if the error is due to lack of reasonable care (“careless”) or deliberate conduct. The penalty rate can vary (up to 30% of the tax avoided for careless errors, and higher for deliberate). A recent tribunal case highlighted how HMRC must justify such penalties: In H&H Contract Scaffolding v HMRC (2023), the company conceded their claim did not actually qualify as R&D, but they contested the penalty for a careless inaccuracy. The First-tier Tribunal ruled in the company’s favour on the penalty, finding that HMRC failed to prove the claimant had been careless. Essentially, even though the claim was invalid, the tribunal agreed the mistake was not due to negligence based on the evidence. This outcome shows HMRC cannot assume every incorrect claim warrants a penalty without demonstrating the behaviour that led to the error. Nonetheless, many enquiries do conclude with penalties, especially if HMRC uncovers evidence that a claim was made with insufficient basis or after warnings (for example, ignoring HMRC’s published guidance could be seen as not taking reasonable care). The safest course for companies is to document their decision-making and advice received, if a claim is found to be wrong but the company can show they tried to get it right (e.g. sought professional advice and kept records), penalties might be mitigated or avoided.

• Agent and advisor sanctions: HMRC’s tougher approach also extends to R&D tax advisers. Officials have openly stated they are prepared to take “decisive action in relation to agents who abuse the relief”. This could include anything from increased scrutiny of all claims by a particular agent up to promoting that agent to HMRC’s tax avoidance blacklist or even referral for investigation. There have been industry reports of HMRC querying agents’ fee structures and marketing practices as part of compliance checks. By cutting off the agent “nominee” payments and requiring advisor details on claims, HMRC is clearly signalling that rogue advisors will be held accountable. In fact, HMRC has cited raising agent standards as a key pillar of its compliance strategy. For claimants, this means choosing a reputable advisor is more important than ever, not only to get the claim right, but to avoid being caught up in any dragnet if your advisor is on HMRC’s radar.

• Refusal to pay & summary amendments: A notable trend is HMRC sometimes choosing to deny or remove R&D claims without a full enquiry, in cases of procedural non-compliance. For example, if a claimant failed to meet the new notification requirement or omitted the AIF, HMRC may simply issue a correction under section 104 of Finance Act 2022 removing the claim, rather than opening an enquiry. Companies then have to correct and refile (if deadlines allow) or appeal that decision. This shows HMRC is less willing to give the benefit of the doubt when basic claim rules aren’t followed. Additionally, if an enquiry is opened and the company doesn’t respond by the deadline, HMRC can close the enquiry by disallowing the claim in full. Given the strict timelines (typically 30 days to reply to the initial enquiry letter), some businesses have lost out simply by failing to engage quickly. Overall, enforcement is more streamlined and assertive, HMRC expects claimants to “get it right first time” and is less tolerant of errors that slip through.

Final thoughts 

With HMRC’s compliance approach now tougher than ever, it is crucial for businesses to ensure their R&D claims are well-prepared, clearly documented, and fully compliant. Given the increase in enquiries, payment delays, and potential penalties, taking the time to get it right the first time can save a lot of stress later on. For companies making legitimate claims, being proactive in record-keeping, ensuring technical accuracy, and seeking high-quality advice is more important than ever. With the right approach, businesses can still benefit from R&D tax relief—while avoiding unnecessary scrutiny.

Recent Tribunal decisions impacting R&D claims 

Several recent tax tribunal decisions have shaped the R&D landscape, especially by checking HMRC’s approach on contentious issues. Here are some key cases and their implications: 

• Stage One Creative Services Ltd v HMRC [2024] – Decided in the taxpayer’s favour. This First-tier Tribunal (FTT) case (judgment released October 2024) addressed whether a company supplying bespoke creative installations could claim SME R&D relief for work done on client projects. HMRC had denied the claims, arguing the projects were “contracted out” R&D or subsidised by the client, thus ineligible under the SME scheme. The tribunal disagreed and found that Stage One’s R&D activities were not simply contracted services and that client payments did not amount to reimbursing R&D costs. In essence, even though the R&D was performed in the course of fulfilling a client contract, the company bore the risk and cost of resolving unforeseen technical challenges. This was a landmark win affirming that client-led projects can still qualify as R&D, provided the contracts don’t specifically pay for R&D and the work involves genuine innovation. The Stage One case, alongside Collins Construction (below), has forced HMRC to reconsider its strict interpretation of “subsidised” R&D. 

• Collins Construction Ltd v HMRC [2024] – Decided in the taxpayer’s favour. Collins Construction had over £3 million of R&D claims across two years which HMRC sought to disallow on the basis that the work was done for clients and thus either subsidised or contracted out. In a significant decision, the FTT rejected HMRC’s position, ruling that Collins’s R&D expenditure was neither “subsidised” nor “contracted out” under the legislation. The tribunal applied a purposive interpretation: if a SME is paid a standard commercial price for a project, with no specific line item for R&D activities, that payment isn’t considered to directly fund the R&D for purposes of disqualifying relief. Similarly, unplanned R&D efforts that arose to solve problems during a contract were not deemed to be “commissioned” by the client – they were incidental innovations by the company itself. The Collins decision is a notable pushback on HMRC’s recent aggressive stance, affirming that the R&D tax relief is meant to support companies solving technical problems, even within commercial projects, as long as they aren’t simply doing R&D at a client’s direction with the client footing the bill. o Impact: Both Stage One and Collins provide clarity on the subsidy/contracted-out rules, which had been an area of uncertainty and dispute. HMRC has announced it will not appeal these FTT rulings and is instead evaluating how they affect current and future enquiries. In January 2025, HMRC acknowledged that guidance is needed on this and said it plans to publish further guidance on handling claims with subcontracted or subsidised elements. HMRC is also contacting companies with open enquiries on these issues to update them on next steps. This suggests that some ongoing disputes may be resolved in taxpayers’ favour or require HMRC to adjust its arguments in light of the tribunal’s interpretation. 

• Flame Tree Publishing Ltd v HMRC [2023] – Decided in HMRC’s favour. This case dealt with a claim for R&D relief on a project involving a business software development. The tribunal focused on whether the work met the qualifying criteria in the Department for Business (BEIS) Guidelines, particularly the need for an advance in knowledge and the presence of technological uncertainty. Flame Tree’s appeal was dismissed because the company failed to demonstrate a scientific or technological advance. The tribunal was not convinced any uncertainties had been resolved, and crucially, it found that the individuals leading the project did not have the requisite expertise to be “competent professionals” in that field. The judgement reinforced how vital it is to have competent experts underpinning an R&D claim. If neither the documentation nor witness testimony can convince the tribunal that a knowledgeable professional was driving the innovation, the claim will likely fall apart. For claimants, this underscores the importance of obtaining and presenting expert input (whether internal or external) when justifying R&D work. 

• Get Onboard Ltd v HMRC [2023] – Decided in the taxpayer’s favour. Another software-related R&D claim, but with a different outcome than Flame Tree. Here the tribunal accepted that the company’s lead developer, despite lacking formal qualifications, was indeed a competent professional and that his testimony about the uncertainties and advances was credible. As a result, the tribunal found the project qualified and allowed the R&D claim. The contrast between Get Onbord and Flame Tree highlights that tribunal decisions can swing on the quality of evidence and expertise presented. It’s not enough for a project to be genuine R&D; the company must also convince HMRC (or the tribunal) that it was genuine R&D. Competent professional evidence is a recurring theme – in fact, reviewing recent cases, a common takeaway is that the presence of a convincing expert can make or break the claim • H&H Contract Scaffolding Ltd v HMRC [2023] – Partial win for taxpayer (penalty aspect). As mentioned earlier, H&H’s R&D claim was disallowed and the company chose not to contest that, effectively conceding the activity wasn’t qualifying. However, they did appeal the associated penalty for careless error. The tribunal ruled that HMRC hadn’t proven the error was due to lack of reasonable care. This decision doesn’t change what qualifies as R&D, but it serves as a check on HMRC’s penalty process. It suggests that if a company cooperates and perhaps had an arguable position (even if ultimately wrong), a penalty might not be justified. For other claimants, it highlights that penalties are not automatic, there is room to argue “we made an honest mistake” if the circumstances support that. 

• Tills Plus Ltd v HMRC [2023] – Decided in HMRC’s favor (on R&D qualification). This case involved a claim for R&D on developing point-of-sale software/hardware solutions. Two issues were examined: whether certain subcontractor payments met the “paid” requirement and whether the project itself met the R&D criteria. The tribunal found that the payments condition was satisfied (the company had paid its subcontractors in time), but still denied the claim because it concluded the activities did not qualify as R&D. In effect, even though the company won on a technical point about expenditures, it lost on the substantive question of qualifying R&D. The case reinforces that meeting all the procedural and financial rules isn’t enough if the underlying work isn’t truly an advance in science or technology. Overall, these tribunal decisions show an increase in R&D disputes reaching the courts, after years where few R&D claims were litigated. They have provided clarity in some areas (like client-funded R&D) and reinforced HMRC’s stance in others (like requiring competent evidence of an advance). HMRC’s decision not to appeal certain taxpayer-favourable tax decisions (Stage One and Collins) suggests it may adjust its internal guidance and possibly be more accommodating on those points going forward. Companies should stay alert for updated HMRC guidance in response to these cases. In the meantime, the safe approach is to mirror these lessons in your claims: ensure you can demonstrate independent, uncertainty-driven R&D (with appropriate expertise), follow all the new claim procedures, and be prepared to argue your case with evidence if challenged.