The R&D tax credit scheme was first established 25 years ago to incentivise spending on innovation and technological advancement. Since then, SMEs in the technical, scientific sectors and beyond have come to rely on this valuable source of income to recover costs and reinvest in growth. £7.6 billion in R&D relief was claimed in 2023-24, showing just how crucial the scheme is to the UK economy.
The scheme has not been without its challenges or critics, however. The rules are notoriously strict, the process lengthy, and claims are heavily scrutinised in a bid to prevent fraud. Unfortunately, this can be a deterrent to smaller businesses, who simply don’t have the time and resources to make an R&D claim.
Further to that, the rate of relief was cut in 2023, and restrictions were put in place on overseas subcontractors, making the scheme even less viable to some businesses. As a result, claims have slowly declined.
And now, R&D tax credits have become a talking point once more, as a case has been brought against HMRC regarding the use of AI in assessing R&D claims. This is a particularly unsettling thought for both accountants and SMEs, casting doubt as to whether past claims have been judged by people or by an algorithm with no context or accountability.
The case
A recent tribunal case, Thomas Elsbury v Information Commissioner (September 2025), ordered HMRC to reveal whether it uses artificial intelligence (AI) to help assess R&D tax relief claims.
The ruling, made by Judge Alexandra Marks, followed a Freedom of Information request from a tax specialist (Elsbury), who suspected the use of AI after spotting tell-tale signs, like American spellings.
Until that point, HMRC had refused to confirm or deny the allegation, arguing that it could help fraudsters to exploit the system and undermine the department’s ability to collect tax.
But the tribunal decided that transparency was in the public interest, and HMRC were forced to disclose if, when, and how AI has been used in handling R&D tax claims.
HMRC’s response
According to HMRC, AI “was not approved for use” by the R&D Tax Credits Compliance team. Make of this what you will, but it doesn’t explicitly answer whether individuals have used AI in this context.
But, while this case has done little to restore faith in the R&D scheme, it has placed the use of AI in tax affairs under greater scrutiny, which can only lead to clearer rules and better transparency in the future.
What does this mean for small businesses?
On the whole, most of the accounting industry would agree that the use of AI is a “good thing”, helping speed up processes, automate laborious tasks and reduce the risk of error. However, the huge caveat is that it must be well-regulated and not used as a substitute for human judgment.
As accountants, we remain hopeful about the integration of AI in our industry and are committed to keeping our clients up to date with the latest developments.
Get help with R&D Tax claims from Approved Accounting
The R&D tax credit scheme can be hugely rewarding but can be hard to navigate. At Approved Accounting, we help businesses make sense of the rules, identify qualifying projects and prepare accurate claims with complete transparency.
Our experienced team knows the scheme inside out. We work with innovative companies in the healthcare, technology, and scientific research industries, helping them to access the funding they are entitled to and keep moving forward.
If you’re planning an R&D claim or want to check whether your activities qualify, contact us for a consultation.
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