The R&D tax credit market has produced more PI claims against accountants in the last three years than any other single line of advisory work.
HMRC’s tightening of the R&D regime from 2023 — additional information forms, mandatory pre-notification for new claimants, the merged scheme, the increased scrutiny on qualifying expenditure and on the contracted-out research rules — has triggered a wave of enquiries into prior-year claims. The clients who relied on aggressive R&D advice are paying back the credits, paying penalties for careless behaviour, and turning round to sue the advisers who prepared the claims. Underwriters are now treating R&D-heavy practices as a distinct sub-category, with proposal questions, exclusions and excesses that were not part of the standard PI market three years ago. This guide explains what underwriters are now asking, where the claims are landing, and how the limitation position plays out.
The 2023 regime changes did not invent the risk; they exposed it. R&D tax relief had been widely sold by a generation of specialist consultancies and adopted by mainstream accountancy practices as an ancillary revenue line, often on a contingent-fee basis tied to the size of the claim. HMRC’s view, set out in successive guidance updates, is that a material proportion of prior-year claims were either non-qualifying in substance or supported by inadequate technical evidence. The HMRC enquiry programme, the introduction of mandatory pre-notification, the additional information form requirement and the abolition of certain SME enhanced reliefs have combined to produce a sustained programme of look-back enquiries.
When HMRC opens an enquiry into a prior-year R&D claim, the practical sequence for the client is: enquiry letter, information request, technical meeting, draft assessment, contract settlement or formal closure notice. The end-point is usually a repayment of the credit, an interest charge running from the original payment date, and a penalty assessment. For “careless” behaviour the penalty is up to 30% of the potential lost revenue; for “deliberate” behaviour the band is higher. The total liability to the client is regularly two to three times the original credit value.
The PI claim trigger is the moment the client becomes liable to HMRC and turns round to the adviser. The claim is typically framed as negligent technical analysis of qualifying expenditure (the activity did not meet the BEIS guidelines on R&D, the technical advance was not properly identified, the project boundary was wrongly drawn), negligent treatment of contracted-out research, negligent inclusion of overheads or ineligible costs, or negligent failure to advise the client on the evidence required to defend the claim at enquiry. Where the adviser worked on a contingent fee, the client’s case is often reinforced by the argument that the adviser had a financial incentive to maximise the claim regardless of risk.
The CIOT’s Professional Conduct in Relation to Taxation framework — the joint code adopted by the major tax-advising professional bodies including CIOT, ICAEW, ACCA and others — is increasingly cited in claims as the standard of care against which the adviser’s conduct is measured. The framework’s requirements on conflicts of interest, technical competence and clear advice to the client are routinely deployed by claimant solicitors.
A claims-made PI policy responds to a claim notified during the policy period, subject to its terms. For R&D claims the policy mechanics that matter most are: the retroactive date (which must reach back to the year the claim work was done — often four to seven years prior), the aggregation wording (where one technical approach has been applied across multiple client claims, aggregation can either help the insured or hurt them, depending on how it operates), the exclusions for contingent-fee arrangements (some insurers have introduced specific exclusions for contingent-fee R&D work), and the notification clause.
Underwriters have responded to the R&D claims experience by changing what they ask at proposal stage. Current proposal questions for any firm with R&D revenue typically include: percentage of firm revenue from R&D advisory work, contingent vs fixed fee basis, in-house technical review process, use of external technical specialists, HMRC enquiry rate on prior claims, claims notified or circumstances under PI policies in the last six years, and whether the firm is signed up to a quality framework such as the CIOT/RD scheme.
Where the firm cannot give satisfactory answers, underwriters are responding with one or more of: increased excess on R&D-related claims, sub-limit on R&D claims aggregated, exclusion of contingent-fee work, exclusion of claims arising from work undertaken before a specified retroactive date, or refusal to quote. The R&D market is now sufficiently distinct that some practices are buying a separate R&D-specific PI layer alongside their general accountants’ PI.
The Limitation Act 1980, section 14A is the long-tail provision that drives the run-off question. For an R&D claim the “knowledge” date — when the cause of action accrues for limitation purposes — is usually the date of the HMRC closure notice or settlement contract, not the date the original claim was filed. That can be five or six years after the underlying work. The 15-year longstop in section 14B caps the total period but is rarely reached on R&D claims. The practical impact: a claim arising from 2021 work may not be notifiable until 2027 or 2028, which is squarely within the standard run-off window only if the firm has bought adequate run-off — see accountants run-off cover.
A 12-person accountancy practice runs an R&D advisory line that generated approximately £350,000 of fee income in the year to March 2023, mostly on a 25% contingent-fee basis on the value of claims agreed. Across the year the practice submitted around 40 R&D claims totalling around £4.8 million of relief.
HMRC opens enquiries into eight of those claims in 2025. Following technical meetings and disclosure, six of the claims are settled with full repayment of the credit, interest and a 22% careless-behaviour penalty. Two are settled with partial agreement. Total client liability across the eight cases: approximately £1.6 million.
The clients pursue the practice. The PI policy responds to the negligent-advice claims subject to a £25,000 each-and-every excess, the aggregation wording (which treats the eight claims as a single “originating cause” because they share a common technical methodology, capping them at a single £2 million limit), and a 10% contribution from the practice on contingent-fee arrangements under a recent endorsement.
The defence and indemnity cost runs to approximately £1.45 million inside the single limit. The practice contributes around £160,000 across excess and co-insurance. Had the practice bought separate limits per claim — by structuring engagements to avoid the aggregation wording — the outcome would have been materially better. Had they failed to notify when the first HMRC enquiry letter arrived, the outcome would have been materially worse.
Apex’s view: R&D is the single most volatile sub-line in the accountants’ PI market right now. We are seeing firms with material R&D revenue forced into restricted terms, sub-limits or outright exclusions, and we are seeing firms with no R&D revenue forced to prove it on the proposal form because the underwriters assume otherwise. The right position for any firm with historic R&D advisory revenue is to assume claims will surface for at least four more years, to notify HMRC enquiry letters as circumstances the moment they arrive, and to plan the run-off projection on a six-to-ten-year basis. The market will reward firms that can demonstrate a quality framework and punish those that cannot.
Apex Insurance Brokers serves UK professional services firms and commercial businesses. Call 0117 325 0027, email hello@apexinsurancebrokers.co.uk, or request a quotation.
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