Of all the curveballs HMRC has thrown at R&D claimants in recent years, the rise in compliance checks has probably been the most frustrating to deal with.
According to the Public Accounts Committee’s review of HMRC’s 2022/23 performance, the number of R&D claims facing enquiry jumped from around 1% to a whopping 20%.
Enquiries, of course, are an essential tool for HMRC to ensure taxpayer compliance. But the introduction of HMRC’s Individual and Small Business Compliance (ISBC) team has brought a whole new challenge: a volume-based approach that’s overwhelmed many claimants. And when the people asking the questions aren’t R&D experts and are inadequately trained caseworkers, valid claims can and have been denied.
So, two years into this new reality, where do things stand?
HOW DID WE GET HERE?
First, some context. For years, reputable R&D advisors (CP Innovation included) called for tougher action to weed out erroneous claims. Originally, HMRC had six dedicated R&D units staffed by specialists who actively helped companies claim properly. When those teams were disbanded, compliance work shifted to the Wealthy and Mid-sized Business Compliance (WMBC) team bringing a noticeable drop in the number of enquiries.
Combine that with the generosity of the schemes and the potential for companies to claim cash payments it’s no surprise that erroneous claims boomed.
Once HMRC acknowledged the scale of the problem, they brought in the ISBC team to ramp up enquiry volumes. Today, depending on the size and setup of the company, an R&D enquiry might come from ISBC, WMBC, or via a Customer Compliance Manager (CCM). This article focuses on the challenges with ISBC.
ISBC VS WMBC: WHAT’S THE DIFFERENCE?
If your claim lands with WMBC, things are typically more straightforward. You’ll usually get a named caseworker. You can speak with them directly by phone, email or even face-to-face. This kind of direct contact helps speed things up and smooths the whole process.
With ISBC, it’s a different story. There’s rarely a single point of contact. Cases often bounce between different caseworkers, and there’s usually no way to have a conversation just multiple rounds of written questions and replies.
That slows things down. A lot. HMRC says the average ISBC enquiry takes around 8 months. In our experience, it’s often longer, especially when we push back robustly on behalf of clients. It’s not unusual to be asked for the same information repeatedly, with earlier responses seemingly ignored.
IS THE TIDE TURNING?
The good news? We’ve seen a noticeable drop in ISBC enquiries throughout 2024 and so far in 2025. Even better, we’ve had five recent cases closed in favour of the taxpayer.
The 20% enquiry statistic still floats around, but the likelihood of being challenged depends on a few things: your advisor, the type of business, and the nature of your claim. Companies in certain sectors (based on SIC codes) are more likely to get picked. And HMRC has flagged some advisors for additional scrutiny.
How to deal with an ISBC enquiry
First, check that the enquiry is valid (i.e. within HMRC’s time limits). After that, you’ll need to engage in correspondence, even if the questions feel repetitive or misinformed.
If the process drags or responses are delayed, there are a couple of escalation options:
- Alternative Dispute Resolution (ADR): A formal route where a neutral HMRC mediator helps both sides try to reach agreement.
- Closure Notice via Tribunal: If HMRC delays excessively, you can ask the Tribunal to force a conclusion (full or partial).
Once HMRC issues a View of the Matter (VoTM), you’ve got 30 days to respond. Your options:
- Accept HMRC’s conclusions – sometimes the pragmatic route, especially if the cost of continuing outweighs the potential relief.
- Request a review by HMRC’s Legal Group (formerly SOLS): Meant to take 45 days, but right now it’s often much longer. Encouragingly, we’ve had three 2025 reviews go our clients’ way.
- Appeal to the Tribunal – which then opens the door to ADR as a backup option.
A QUICK WORD ON ADR
ADR can be a game-changer. It brings everyone to the table literally with a HMRC mediator guiding the discussion. While ISBC cases usually start without a named caseworker, ADR requires one to be appointed. That in itself often speeds things up.
In a typical case, there’s a prep call and then a one-day online meeting with all key players. If no agreement is reached, you can still appeal to the Tribunal. But in our experience, ADR often breaks the deadlock.
RECENT SUCCESSES
Over the last few months, we’ve seen five IBSC enquiries closed in favour of the taxpayer. Three SOLS reviews also upheld the original claims made. In addition, we’ve also seen success with the ADR route. Having worked with several companies to defend their R&D claims from ISBC enquiries over the last few years, what would we say to companies facing enquiry into their claim?
OUR ADVICE?
Make sure you’ve avoided all the obvious risk factors. Work with a reputable advisor who can highlight red flags such as the level of spend per project, risky SIC codes, or inconsistencies in the Additional Information Form (AIF).
Don’t give up. If your claim is valid, stick with it. R&D relief remains a valuable relief for innovating companies. We’ve had clients win after over a year of silence. One £200k claim was recently approved after 15 months and a total U-turn from HMRC.
Be proactive. If an enquiry stalls, consider ADR. It takes time and there are fees involved, but for larger claims, it’s often well worth the investment. A recent case we took to ADR resulted in HMRC agreeing the claim in full after the preparatory meeting. In total it took 21 months from the opening of the enquiry to HMRC agreeing the claim in full. This was a claim £350k for our client, making the time and cost investment more than worthwhile.
FINAL THOUGHTS
Enquiries are part of the deal when claiming tax relief. We get that. But based on what we’re seeing there’s been a welcome reduction in ISBC compliance activity.
If you’re stuck in the middle of an enquiry, or worried about submitting your next R&D claim, get in touch. We’ve been supporting our clients through the process and our experience has resulted in a positive outcome for our clients
