Help for small companies to claim R&D tax reliefs: HMRC's Advance Assurance Service
Susan Cattell (Head of Taxation, England and Wales) highlights a recent HMRC Talking Points session encouraging applications for HMRC’s Advance Assurance Service for R&D tax reliefs.
R&D Tax Reliefs
R&D tax reliefs were introduced in 2000 and are available to companies but not unincorporated businesses. The rules are complex and there have been frequent changes, generally to make the reliefs more generous. Smaller companies are often deterred from claiming them but for companies with eligible expenditure the reliefs could be very valuable.
Donald Drysdale discussed what might be available and the difficulties encountered by small companies in an earlier article. This also highlights an important consideration for taxation practitioners and in-house accountants: under the rules on professional conduct in relation to taxation, they must not undertake professional work which they are not competent to perform. This may oblige them to obtain appropriate assistance from a suitably qualified specialist such as another accountancy firm with appropriate R&D expertise or a suitable technical or scientific adviser.
What is Advance Assurance?
This is an HMRC service designed to encourage smaller companies with eligible expenditure to claim R&D reliefs, by giving them help and some assurance that their first three years’ R&D claims will be accepted. Since the launch at the end of 2015 the HMRC team dealing with Advance Assurance have received only around 200 applications. They would welcome more applications and recently ran a Talking Points interactive digital session to publicise the service and encourage more companies and their agents to apply. A recording of the Talking Points session (including the Q&A) is available.
Which companies can apply?
The service is aimed at smaller companies so it is restricted to those with:
- less than £2 million turnover, and
- under 50 employees.
It is only available to companies that have not previously claimed R&D reliefs.
Applications are usually made using an online form and agents can apply for Advance Assurance on a company’s behalf, although HMRC will need to talk to a company director or employee (for example, research manager) subsequently.
HMRC aim to contact a company within 15 days of receiving the application; the next stage is a telephone call between the company (and its accountant where appropriate) and HMRC. An HMRC tax specialist will discuss: R&D activity, qualifying expenditure, records and claim methodology. HMRC will also answer any questions, explain where to find additional guidance and explain what changes may affect the R&D claim.
The webinar gives more details of who can apply, how to apply and the process.
What is assurance?
The webinar also discusses some important features of assurance:
- It is providing assurance, not clearance.
- The main focus is assurance on qualifying activities and categories of qualifying expenditure.
- The process provides education to the company, confidence in its ability to claim, and formal assurance that claims will be accepted.
- It is a dialogue to provide HMRC with assurance that the company understands the R&D tax rules, and will carry out activity that complies.
- There is a measure of flexibility: HMRC know that plans can change in three years. Clear guidance is given on the degree of flex in the assurance.
It is important to realise that whilst a company might be turned down for the Advanced Assurance service (perhaps because it does not meet the conditions for using the service) this does not mean that it cannot make an R&D claim. If it considers it has eligible expenditure it can make a claim in the normal way.
When a company using Advance Assurance submits its first claim for R&D relief it will be considered by an Advance Assurance caseworker to check that it has been made in the agreed way. If there is any material discrepancy the caseworker will request an explanation.
What constitutes a ‘material discrepancy’ will vary from company to company, as it will depend on the particular circumstances. However, an example given in the webinar suggested that it might include a case where the projected expenditure (discussed as part of the Advance Assurance process) was £50,000 but the submitted claim was for £1.5 million.
If the explanation provided by the company is not satisfactory HMRC might need to withdraw the assurance and undertake a detailed review of the claim.
Future HMRC Talking Points
Talking Points are regular, interactive, digital meetings designed specifically for tax agents; they include presentations from HMRC experts and Q&A sessions with agent participants. Recently HMRC has also used a Talking Points session to obtain input from agents into the development of a new Agent Authorisation process.
If you want to see details of forthcoming Talking Points and sign up to attend, go to the HMRC Talking Points page. Once a month HMRC also posts links to recordings of earlier sessions.
Send an email to firstname.lastname@example.org if you have any feedback on this HMRC Talking Points session or any other HMRC digital support tools, including digital Working Together meetings (which were discussed earlier this year). Digital Working Together - time to get involved.