HMRC Annual Report 2025-26: R&D tax relief scrutiny isn’t going away

HMRC’s Annual Report and Accounts 2025-26 suggests that research & development (R&D) tax relief remains a significant source of support for UK innovation, but businesses should expect continued scrutiny. Claim processing has improved, error and fraud levels are reducing, and HMRC is continuing to invest in compliance activity, data analytics and technology.

For innovative businesses, the message is clear: R&D tax relief remains an important source of support, but robust claims backed by strong evidence have never been more important.

How much R&D tax relief support did HMRC provide?

HMRC reported that expenditure on R&D tax reliefs reached £8.0 billion in 2025-26, underlining the continued importance of the incentive in supporting innovation and growth across the UK economy. The report positions R&D tax relief as a key mechanism for helping businesses invest in science and technology projects and supporting wider government economic objectives.

This is also the first full year to reflect the reformed landscape, with the merged R&D Expenditure Credit (RDEC) regime and Enhanced R&D Intensive Support (ERIS) scheme now established as the primary routes for claiming support.

Are R&D tax relief claims being processed faster?

One of the more encouraging findings from the report relates to HMRC's processing performance.

HMRC states that 89% of payable R&D credit claims were processed within 40 days, exceeding its own customer service target of 85%. This suggests that, despite increased scrutiny and compliance activity, legitimate claims are continuing to move through the system efficiently.

For businesses relying on R&D tax incentives to further support cash flow and future investment plans, this will be a welcome development.

Is HMRC reducing error and fraud in R&D claims?

A major focus of HMRC's recent reforms has been reducing error and fraud within the R&D tax relief system.

The report reveals that the estimated error and fraud rate for Corporation Tax R&D reliefs in 2023-24 was 6.4% (£493 million), comprising 11.1% for the SME scheme and 3.2% for RDEC claims. HMRC notes that this represents a significant improvement compared with previous years and reflects the impact of both legislative changes and operational interventions.

Looking ahead, HMRC estimates that the overall error and fraud rate has reduced further to around 5.3% for both 2024-25 and 2025-26.

The introduction of additional information forms, mandatory digital submissions and enhanced compliance activity appear to be having the intended effect.

Why does compliance remain a key priority?

While the direction of travel is positive, HMRC's report makes it clear that compliance activity is not going away.

The National Audit Office continues to qualify HMRC’s accounts because of the level of error and fraud present in R&D reliefs. HMRC also highlights continued investment in compliance capability, expanded analytical tools and the use of artificial intelligence to identify and address risks across the tax system.

The report notes that HMRC generated more than £50 billion of compliance yield during the year and continues to increase frontline compliance resource as part of its wider strategy to reduce the tax gap.

For R&D claimants, this means enquiries and compliance checks are likely to remain a feature of the regime for the foreseeable future.

What does this mean for businesses making R&D claims?

The conversation around R&D tax relief has evolved considerably over the last few years.

The focus is no longer simply on whether businesses should claim. Instead, the emphasis is increasingly on demonstrating eligibility and supporting claims with clear technical and financial evidence.

Businesses should ensure they:

• Maintain robust project documentation.
• Clearly articulate the scientific or technological advances sought.
• Demonstrate the uncertainties faced during development.
• Retain supporting financial records linked to qualifying activities.
• Review claim methodologies regularly to ensure they remain aligned with current legislation and guidance.

As HMRC continues to develop its compliance capabilities, businesses with well-prepared and well-evidenced claims are likely to be best placed to navigate increased scrutiny with confidence.

What should businesses do next?

HMRC's latest annual report paints a picture of a regime that is becoming more mature and more stable.

Government support for innovation remains substantial, processing times are improving and error and fraud levels appear to be moving in the right direction. At the same time, HMRC’s ongoing investment in compliance activity demonstrates that scrutiny of claims will remain a priority.

For innovative businesses, R&D tax relief continues to represent a valuable source of funding. The key to success is ensuring claims are technically robust, commercially grounded and supported by strong evidence from the outset.

We’re here to help

Successfully navigating an HMRC R&D enquiry starts with preparation, clear documentation and a robust approach to compliance. By building your claim around a strong technical narrative and reliable supporting evidence from the outset, you can put your business in the best possible position if HMRC raises questions.

Azets has a dedicated team of R&D tax specialists who can help you prepare a well-evidenced claim and, if an enquiry arises, defend your position with confidence.

If you would like support preparing an R&D claim, managing an enquiry or responding to HMRC, speak to our team today.