HMRC’s R&D tax relief update signals need for stronger compliance & governance
HMRC’s recently published 2024–25 Annual Report underscores a significant shift in the research & development (R&D) tax relief environment - one that financial leaders cannot afford to overlook.
The numbers
- £8.2 billion in R&D expenditure was claimed in 2024–25.
- 90% of claims were processed within 40 days.
- The overall error and fraud rate has been reduced to 5.9%, reflecting increased scrutiny and a maturing compliance framework.
Key structural changes
The most notable reform is the merging of the SME and RDEC schemes into a single, unified R&D tax credit from April 2024. While this simplifies the system, it also raises the stakes for compliance and documentation. Notably, enhanced support remains for R&D-intensive, loss-making SMEs, helping preserve innovation incentives for early-stage and high-risk ventures.
Compliance and risk management
HMRC has clearly raised the bar. Key developments include:
- Mandatory Additional Information Forms to substantiate claims.
- Increased audit and review activity, putting internal controls in the spotlight.
CFOs and Finance Directors must respond by reinforcing internal governance and ensuring robust, defensible processes are in place. Accurate, contemporaneous technical and financial documentation is no longer optional - it’s essential.
New tools for transparency
- The R&D Disclosure Facility enables businesses to correct overclaims voluntarily - helping mitigate penalties and build trust.
- HMRC is also proposing an expanded advance clearance mechanism, which could provide companies with upfront certainty on claim eligibility.
What businesses should do now
To manage risk and optimise outcomes in this evolving landscape:
- Align technical and financial documentation from the outset.
- Reassess processes for identifying and capturing qualifying R&D activities.
- Engage advisers early to ensure claims meet the heightened standard.
A more targeted, accountable regime
The direction is clear: HMRC’s approach to R&D tax relief is becoming more stringent, transparent, and strategically focused. Businesses that treat this as a compliance exercise alone may struggle. Those that integrate these changes into a broader risk and innovation strategy will continue to benefit.
We’re here to help
The R&D tax relief scheme can be complex and full of pitfalls. We have supported many businesses with the full claim process, making sure they are fully complying with all HMRC requirements and making their case as robust as possible. If you are considering an R&D claim or have encountered issues with one you are in the midst of trying to process, please get in touch with our specialist R&D Tax Relief team.