Why documentation, not claim size, is now the biggest R&D tax risk

“Keep the R&D tax claim sensible and you reduce the risk.”

It’s an understandable approach. Many businesses have moderated claims not because the activity wasn’t there, but because the perceived risk of scrutiny outweighed the upside. A smaller claim felt safer.

But that logic doesn’t hold in today’s environment.

Over the past year, I’ve spoken with a wide range of businesses, and almost all have experienced an R&D enquiry in some form. Some described it as manageable, others as deeply time-consuming and disruptive.

Fewer R&D tax claims, greater HMRC scrutiny

That experience aligns with HMRC’s latest data. In the 2024 tax year, around 17% of claims were reviewed, resulting in approximately 9,700 enquiries, with £441m of non-compliant claim value identified. At the same time, overall claim volumes fell by 26%.

The key takeaway isn’t just that enquiries are increasing. It’s how they are being handled.

Because once you are in enquiry, the size of the claim becomes far less important.

What happens when a HMRC enquiry begins?

HMRC’s approach is consistent. Whether triggered randomly, by an inconsistency, or due to a perceived risk profile, the first request is always the same: supporting documentation.

Not just a narrative, but evidence linking technical activity to cost.

At that point, the conversation shifts entirely. It’s no longer about whether the claim is too big. It’s about whether it can be evidenced.

Why valid RDEC claims still fail under scrutiny

Most challenges do not arise because R&D didn’t take place. They arise because claims are reconstructed retrospectively:

• Technical narratives are written long after the work has finished.
• Cost allocations rely on estimates rather than contemporaneous records.
• Audit trails between activity and spend are incomplete.

Under enquiry, these gaps become exposed. The underlying activity may be valid, but the documentation doesn’t stand up.

This is why a smaller, poorly documented claim can carry more risk than a larger, well-supported one. The root cause is simple. Documentation is treated as an afterthought, rather than part of the process.

The shift from retrospective to real-time documentation

What we are now seeing is a clear divide in how businesses approach R&D tax claims. Some businesses embed documentation into their workflow, capturing activity and costs in real-time. Others react to enquiry, attempting to rebuild the story under pressure.

Real-time capture is becoming critical. It strengthens defensibility and reduces the burden at year end by removing the need to reconstruct what happened.

Real-time documentation:

• Creates a clear audit trail between activity and expenditure.
• Aligns with HMRC’s increased focus on structured submissions.
• Reduces reliance on estimation and reconstruction.
• Significantly improves defensibility during enquiry.

In practice, it moves the claim from being a narrative exercise to an evidence-led process.

What this means for finance teams

For finance and tax teams, the implication is clear. Reducing risk is no longer about limiting the claim. It is about ensuring that, if an enquiry arises, the claim can be clearly evidenced and confidently defended.

That requires a change in approach. Teams must view documentation as a compliance output and treat it as an integral part of how R&D activity is captured and governed.

A more defensible approach to R&D tax claims

The businesses that are best positioned in today’s environment are not those claiming the least. It’s those that can demonstrate, with clarity and consistency:

• What work was done
• Why it qualifies as R&D
• How costs were incurred and allocated

Because in today’s R&D landscape, the outcome of an enquiry is not determined by how much you claimed. It is determined by how well you can prove it.

Assessing your current risk position

For businesses still relying on retrospective claim preparation, the risk is no longer theoretical.

A more robust approach starts with strengthening how R&D activity and costs are captured throughout the year, not just at submission.

If your current process would struggle to produce clear, contemporaneous evidence under HMRC scrutiny, it may be time to reassess how your claims are prepared and documented.