SMEs Caught in the Crossfire of HMRC’s Anti-Fraud Drive on R&D Relief

According to HMRC’s latest figures, the value of relief claimed through the SME scheme fell by 29% to £3.15bn in the last year.

The decline is not just the result of fraudulent claims being blocked. Genuine businesses are also stepping away, deterred by the risks and costs associated with HMRC’s tougher stance.

Ele Theochari, Partner, explains:

Some SMEs are being caught in the crossfire of HMRC’s push to tackle fraud. According to HMRC’s latest statistics the amount of R&D tax relief claimed through the SME scheme fell by 29% to £3.15bn when compared with the previous year.

Why Are SMEs Reluctant to Claim?

R&D tax relief was designed to reward innovation, but the system has become increasingly complex. HMRC has intensified compliance checks and launched new processes such as the “additional information form.” While these measures have been effective in deterring fraudulent claims, they have also added uncertainty and administrative burden for legitimate businesses.

Although this drop represents weaker and fraudulent R&D claims being foiled by anti-fraud efforts, it also includes SMEs who have claimed legitimately and then rescinded that claim. For them, the time and money needed to defend their claim when HMRC opens a random enquiry often outweighs the benefit they got in the first place.

For many SMEs, the potential value of relief is being outweighed by the risk of a costly dispute.

The Double-Edged Sword of Regulation

Stricter scrutiny has had some positive effects. Poor-quality or unscrupulous advisors, who have previously encouraged companies to submit inappropriate claims, are being pushed out of the market.

HMRC continuing their compliance and fraud prevention efforts, combined with the introduction of the additional information form has likely pushed some bad advisors out of the market. Which does benefit SMEs as they are less likely to be misled by incorrect or even illegal advice.

But the absence of formal regulation in the R&D advisory sector leaves space for new risks.

Ele highlights:

I am seeing large numbers of new R&D advisors popping up due to a lack of overall regulation in the market. Currently, anyone can start a R&D practice and target SMEs. There was a lull due to the anti-fraud efforts, but I am now seeing questionable practices being proposed along the lines of ‘we’ll do your claim for 5% and include enquiry defence’ which is harking back to the same, still unresolved, issues that were facing the sector 10 years ago.

This cycle of unregulated advisors entering the market raises the risk that businesses could once again be exposed to poor guidance, disputes with HMRC, and reputational damage.

Why This Matters for Businesses and the UK Economy

Innovation is central to the UK’s economic growth strategy. R&D tax relief is one of the government’s flagship policies for encouraging it, especially among SMEs that often lack access to large-scale investment.

If legitimate businesses are discouraged from claiming relief, the UK risks stifling innovation at a time when competitiveness, productivity, and investment are under pressure. For SMEs, this can mean losing a valuable source of funding that supports new products, processes, and services.

The current situation also creates uneven outcomes: larger firms, with greater resources to defend claims, are more likely to proceed, while smaller companies may miss out.

What You Should Consider/Do Next

For SMEs:

Do not dismiss R&D tax relief entirely – the scheme remains valuable, but navigating it requires care

Choose advisors carefully – seek out firms with a strong track record, professional credentials, and transparent fee structures. Be cautious of “too good to be true” offers

Prepare thoroughly – robust documentation of projects and costs can reduce the risk of challenge

Balance cost vs. benefit – evaluate whether the potential claim justifies the time and resources required in the event of an HMRC enquiry

Would you like to know more?

If you would like to discuss the above matter, please get in touch with your usual Blick Rothenberg contact, or Ele Theochari using the form below.