Preparing for an HMRC R&D Enquiry: What Every CFO Should Have Ready

An HMRC Enquiry Isn't a Failure. It's a Test of Your Process.

Few letters create as much concern for a finance team as one from HMRC announcing an enquiry into an R&D tax relief claim. For many CFOs, the immediate reaction is to question whether something has gone wrong. In reality, an enquiry does not automatically indicate that a claim is incorrect.

HMRC has significantly increased its compliance activity over recent years as part of wider efforts to improve the quality of claims being submitted. As a result, genuine businesses carrying out legitimate innovation may still receive questions from HMRC. The difference between a straightforward enquiry and a lengthy, resource-intensive investigation often comes down to one factor: preparation. The strongest businesses don't prepare for an enquiry after submitting a claim. They prepare before they ever submit one.

Why HMRC Has Increased Enquiries

The UK's R&D tax relief scheme has delivered billions of pounds in support to innovative businesses over the past two decades. However, HMRC has also identified poor-quality technical narratives, claims prepared without sufficient evidence, incorrect cost allocations, businesses misunderstanding the definition of R&D, and claims submitted by advisers with limited technical expertise.

The response has been tighter legislation, enhanced reporting requirements and more detailed enquiries. For genuine businesses, this shouldn't discourage claims. It should encourage better governance.

What HMRC Is Really Trying to Understand

An HMRC enquiry isn't simply about the amount being claimed. Inspectors are trying to establish whether the business genuinely undertook qualifying R&D activity. They typically want to understand what scientific or technological uncertainty existed, why the solution wasn't readily deducible, who led the technical work, how the uncertainty was overcome, which costs directly relate to qualifying activities, and how expenditure has been calculated. The better your business can answer these questions, the smoother the enquiry is likely to be.

Documentation Is Your Strongest Defence

The biggest mistake businesses make is attempting to recreate evidence months, or even years, after the work has been completed. Instead, finance leaders should encourage contemporaneous record keeping.

Technical Evidence

Project specifications, design documents, engineering drawings, software repositories, testing records, prototype iterations, laboratory notes and product development logs.

Financial Evidence

Payroll records, time allocations, cost schedules, contractor agreements, software invoices, cloud computing expenditure (in scope for accounting periods beginning on or after 1 April 2023) and consumable costs.

Governance Evidence

Board papers, investment approvals, project plans, risk registers, meeting minutes and internal reporting. These documents collectively demonstrate that qualifying activity genuinely took place.

Competent Professional Input Is Critical

One of the most important elements during an enquiry is input from a competent professional. The assessment should be informed by someone with relevant knowledge and experience in the field of science or technology, able to explain the technological baseline, the uncertainty encountered, why the challenge wasn't routine, how the team attempted to solve it, and what knowledge was gained. This isn't a finance discussion. It's a technical discussion. HMRC does not require one named individual to manage every part of a claim, but having that input available before submission significantly strengthens the business's position.

CFOs Should Think Like Auditors

One useful exercise is to ask whether, if you knew nothing about this business, the evidence would convince you. This simple question often highlights missing information. Strong governance isn't about producing more paperwork. It's about producing the right evidence.

Internal Controls Reduce Risk

Preparing for future enquiries begins with internal processes. Leading finance teams establish procedures covering project identification, technical interviews, cost tracking, documentation standards, approval processes and record retention. Rather than relying on memory, businesses create repeatable systems. This reduces both compliance risk and internal workload.

The Importance of Technical Narratives

Many enquiries arise because technical reports fail to explain the advancement sought, the uncertainty encountered, the experimental work undertaken, and why existing knowledge was insufficient. Financial schedules alone are rarely enough. A well-written technical narrative provides the context that allows HMRC to understand why the work qualifies.

Common Mistakes Businesses Make

During enquiries, recurring issues often include projects described too broadly, commercial challenges presented as technical uncertainty, costs included without sufficient explanation, poor links between technical activity and expenditure, missing supporting evidence, and inconsistent descriptions between reports and accounts. Most of these issues are avoidable.

How Specialist Support Changes the Experience

One of the greatest advantages of working with an experienced R&D specialist is continuity. If HMRC raises questions, the people who prepared the claim remain involved. That means technical explanations remain consistent, documentation is readily available, responses are coordinated, and finance teams remain focused on running the business. The enquiry becomes a structured process rather than a stressful event.

Preparing Before Submission

Rather than asking what happens if HMRC enquires, ask whether the business would be comfortable if they did. If the answer is yes, the business is probably well prepared. If the answer is no, improvements should be made before submission.

How PSS Tax Supports Businesses Through HMRC Enquiries

At PSS Tax, enquiry preparation starts on day one. Our technical specialists work alongside finance teams to build robust claims supported by detailed technical narratives, accurate cost analysis and comprehensive documentation. Should HMRC request additional information, we remain alongside our clients throughout the enquiry process, working collaboratively with CFOs, accountants and technical teams to provide clear, evidence-based responses. Our objective isn't simply to submit successful claims. It's to ensure businesses remain confident long after submission.

Final Thoughts

HMRC enquiries are becoming an increasingly normal part of the R&D landscape. For genuine innovators, they should never be viewed as something to fear. Instead, they should be viewed as a test of governance.

Businesses with strong documentation, clear technical evidence and experienced specialist support are significantly better positioned to respond confidently. For today's CFO, preparing for an enquiry isn't about expecting problems. It's about ensuring the business is ready for success.

About PSS Tax

PSS Tax provides specialist R&D tax relief services to innovative businesses across the UK. From identifying qualifying projects and preparing technical narratives to managing HMRC enquiries, our team supports finance leaders throughout the entire lifecycle of an R&D claim.