HMRC’s R&D Crackdown: Fighting Fraud or Stifling Innovation?

In a move that has triggered growing concern across the UK’s innovation sector, HMRC has intensified its efforts to clamp down on fraudulent R&D tax credit claims. While protecting public funds is a priority, many experts warn that the current heavy-handed approach risks undermining the very innovation the R&D scheme was designed to support - especially among the UK’s most dynamic small and medium-sized enterprises (SMEs).

Crackdowns and “High Risk” Letters

Since the start of 2022, HMRC begun to issue letters to businesses whose R&D claims were flagged by its internal systems as “high risk.” These letters often include stern, alarming language suggesting possible fraud, despite many recipients being legitimate claimants.

In several cases, HMRC has backtracked when challenged, stating that the letters were “routine” and not formal accusations. However, the initial tone has left many businesses feeling accused rather than supported - raising questions about whether HMRC’s communication strategy is doing more harm than good.

A Growing Focus on Tax Compliance

There’s no doubt that HMRC is under increasing pressure to tighten compliance. The agency recently reported that £441 million was identified as incorrectly claimed in R&D tax reliefs during 2023–24, thanks to enhanced compliance checks. This is part of a broader effort to stem tax loss, with HMRC estimating at least £15 billion lost to tax evasion in the last financial year alone. According to the National Audit Office, total fraud and error across government spending could be as high as £81 billion for 2023–24.

While the goal of reducing misuse is commendable, experts argue that a “scattergun” enforcement method is not the solution.

Industry Response: “Unhelpful and Scary for Businesses”

Many experts agree that HMRC’s scattergun compliance strategy may be doing more harm than good. Rufus Meakin, an R&D tax specialist, has publicly criticised HMRC’s apparent lack of technical understanding, sharing instances where claims were rejected on the bizarre basis that “computer science is not a science.” (Source)

Richard Edwards, founder of The R&D Community, echoes this concern. He argues that HMRC’s volume-based compliance model relies heavily on undertrained caseworkers who lack the nuanced understanding needed to properly assess claims - resulting in inconsistent and, at times, unjust outcomes. (Source)

Dan Neidle, a prominent tax expert, has called for a more focused and punitive approach that targets bad actors directly without burdening genuine claimants with excessive red tape. (Source)

Paul Rosser, Director at R&D Consulting, further notes that HMRC’s aggressive checks have left some businesses unsupported, as original advisers are unwilling or unable to defend claims under scrutiny. He advocates for HMRC to play a more educational and advisory role in guiding valid claimants through the process. (Source)

Craig Mackinlay MP, a chartered tax adviser and member of the Public Accounts Committee, has spoken out against HMRC’s current tactics, noting the strain caused by excessive delays and the confrontational language of compliance letters. (Source)

Jenny Tragner, Partner at S&W, acknowledged that while cracking down on fraudulent claims is necessary, a “really hardline approach that isn’t well targeted” is more likely to scare legitimate claimants away from using the scheme altogether (Director at ForrestBrown at the time). (Source)

At R&D Tax Hub, we’ve seen how this climate of fear and confusion can lead businesses to underclaim or avoid the scheme entirely - despite having qualifying innovation projects. Uncertainty over whether claims will be challenged, delayed, or even unfairly rejected adds stress and cash flow risk, particularly for SMEs with limited financial buffers.

What Needs to Change?

To safeguard the future of UK innovation, we believe a better balance is needed. HMRC’s compliance efforts should focus on:

• Precision targeting of suspected fraud, not blanket suspicion of SMEs.

• Clear, respectful communication to avoid intimidating legitimate businesses.

• Faster and more transparent claim reviews, so innovators can plan with confidence.

Final Thoughts

The R&D tax relief scheme has long been a cornerstone of the UK’s innovation strategy. But if legitimate claimants feel punished or discouraged by current enforcement tactics, we risk losing the trust and participation of those who are building the UK’s future economy.

At R&D Tax Hub, we stand with businesses innovating in good faith. We advocate for a fairer, more transparent process - one that deters fraud without deterring innovation.