The law firm says the 372% rise may reflect large businesses claiming increased amounts of R&D tax credits under the new, more generous research and development expenditure credit scheme. The total amount of R&D support claimed under the scheme has increased by 20% to £2.88bn in the last year.

The new R&D tax credits system, introduced in April 2013, allows large companies to claim a cash credit from HMRC based on their qualifying R&D expenditure. From 1 April 2016, large companies can only claim an RDEC of 11% (gross - subject to various adjustments). However, smaller companies can take advantage of a more generous 130% R&D relief.

Previously, big businesses were entitled to an enhanced deduction of 30% on qualifying expenditure, and losses generated under the scheme were not eligible.

Pinsent Masons says the major change to the R&D tax credit system has been to make credits ‘above the line’, which incentivises more claims. As a result, HMRC’s large business directorate is now starting to challenge more tax relief claims that companies can apply for on R&D projects.

The £425 million under dispute is part of ‘tax under consideration’, which is what the department estimates the maximum potential additional tax liability is across all enquiries, before full investigations have been completed.

Ian Hyde, Partner at Pinsent Masons, said: ‘With a rise in the number of R&D claims made by large firms, partly because of changes to how they can claim relief, HMRC is reviewing these claims more carefully.

‘However, despite HMRC claiming the tax claims are being investigated, it does not mean that the credits are not due, £400m is the headline figure that they estimate may not have been properly claimed. The amount of credits that HMRC will actually deny as a result of its investigations will be significantly lower.’

 Report by Pat Sweet