If HMRC has rejected your R&D tax credit claim, or you've just been warned it's coming, it can feel like the end of the road. It isn't.
Rejection starts a specific, well-worn sequence of events, and at nearly every stage you have the right to challenge HMRC's decision. This post walks through what the rejection letter actually means, whether you're likely to face a penalty, and the route through appeal, HMRC's Solicitors Office and Legal Services (SOLS), and tribunal if HMRC won't move.
What does a rejection letter actually say?
A rejection arrives after HMRC has reviewed your claim, usually following one or more rounds of correspondence during a compliance check, and remains unconvinced that your project met the qualifying criteria. You are very unlikely to receive a rejection outright after submission; HMRC like to give you the opportunity to explain yourself better.
If you’ve communicated with HMRC and they still don’t believe your project qualifies, you’ll receive a rejection letter (or potentially multiple letters covering different aspects of the rejection). Two things will be in that letter. First, a request for repayment of any tax benefit you've already received, whether that's a reduction in your corporation tax bill or a cash credit paid out. Second, a set of questions designed to help HMRC decide whether a penalty should apply on top of the repayment.
Neither of these is the final word. You can appeal, and the outcome of that appeal can reverse both the repayment demand and any penalty. If you do appeal, you needn’t pay back any credit yet, as your case is still open.
Will you be charged a penalty?
Not automatically. HMRC applies penalties based on behaviour, not simply because a claim turned out to be wrong. A claim made carelessly or in bad faith carries a much higher penalty risk than one that was prepared thoroughly but ultimately misjudged.
Working with a qualified R&D tax adviser generally demonstrates that you took reasonable care in preparing your claim, which reduces or removes penalty exposure. Answer HMRC's penalty questions honestly and promptly regardless; doing so isn't an admission of wrongdoing, and if HMRC later overturns the rejection, any penalty charged alongside it is struck out too.
Can you appeal HMRC's decision?
Yes, and this is worth doing.
When you appeal, give HMRC a clear, evidenced summary of why you believe the claim is legitimate. This is your chance to present a second review with additional evidence or arguments that weren't fully addressed the first time round, so use it to strengthen your position rather than simply restating what you've already said. You can request for the appeal to go to another reviewer, so make sure you also include the foundation of your argument too.
What happens if HMRC still disagrees?
If your appeal doesn't resolve things, the dispute can be escalated to SOLS, HMRC's own legal team, for an independent review of whether the rejection should stand.
It's worth knowing that SOLS reviews tend to support the original compliance decision, so don't expect this stage alone to overturn things. What can genuinely move a stalled dispute forward is a direct conversation rather than another round of letters. A teleconference at this stage gives you the chance to demonstrate your team's technical knowledge directly, answer HMRC's recurring concerns in real time, and ask them to clarify exactly what they're still not convinced by.
The route to tribunal
If SOLS also upholds the rejection, your final option is the First-Tier Tax Tribunal, where an independent judge reviews the evidence and issues a binding decision. It's a formal legal process, and a lengthy one; tribunal cases often take many months, sometimes well over a year, largely due to delays in the justice system rather than anything about your specific case.
It's a route worth taking seriously rather than avoiding. Tribunal decisions in R&D disputes have tended to favour the taxpayer in recent years, including a case that confirmed something significant about how the burden of proof works: at a certain point in the compliance process, the burden shifts from the claimant having to prove the claim qualifies, to HMRC having to prove that it doesn't.
A real case: 22 months, and the claim reinstated in full
We've seen this process through to the end for a client, and it's worth knowing what it actually looks like rather than just the theory.
The claim was for a pharmaceutical R&D project with a tax credit worth ~£25,000, led by a Chief Scientific Officer with a genuine track record in the field. HMRC's compliance team issued the first enquiry letter in December 2022. By March 2023, they'd rejected the claim outright, stating that no evidence of scientific or technological advancement had been provided, and requested penalty information. We responded with a 21-page letter directly countering HMRC's position, but by June 2023 HMRC confirmed the rejection and issued a penalty of nearly £3,000.
We appealed to SOLS that July. HMRC had to be chased just to acknowledge the appeal, and by May 2024, SOLS confirmed it supported the original rejection. With no route left to resolve the dispute directly, we submitted an appeal to the First-Tier Tax Tribunal in June 2024. HMRC was directed to provide its statement of case; instead, in September 2024, HMRC's SOLS solicitor emailed to confirm they had settled by reinstating the original claim in full.
Twenty-two months from first letter to full reinstatement. The claim was always genuine; what changed was that HMRC eventually had to test its position against a level of scrutiny it couldn't sustain. Read the full case here.
How to reduce the risk of rejection in the first place
The strongest position at every stage of this process, from the first enquiry letter through to tribunal, comes from documentation that already exists rather than evidence assembled under pressure. A technical report for each project, contemporaneous records linking staff time to specific R&D work, and clear evidence of your competent professional's involvement all make the difference between a claim you can defend quickly and one that takes 22 months to resolve.
Key takeaways
- A rejection isn't final. You can appeal, escalate to SOLS, and ultimately take the case to tribunal, and R&D disputes have increasingly gone the taxpayer's way.
- Penalties depend on behaviour, not outcome. A carelessly prepared claim carries more risk than one that was thorough but ultimately unsuccessful.
- Answering HMRC's penalty questions isn't an admission of guilt. If the rejection is later overturned, any penalty goes with it.
- The burden of proof can shift to HMRC. Recent tribunal outcomes have confirmed this, which is a meaningful advantage if your case gets that far.
- Documentation built at the time beats documentation built under pressure. It's the single biggest factor in how quickly and successfully a rejection gets resolved.
If you're dealing with a rejected R&D claim, or you'd like help making sure your next one is built to withstand scrutiny from the outset, get in touch and we'll talk you through your options.
