R&D Tax Credits: What Is Advanced Assurance And How Might It Benefit My Client?
What is the R&D tax relief Advance Assurance option?
HMRC offers the Advanced Assurance option to any SMEs that are claiming R&D Tax Credits for the very first time.
R&D Tax Credits: A Quick Rundown
UK companies paying Corporation Tax that have undergone any work involving research and development can receive a portion of their tax back via R&D Tax Credits.
If your client’s business is in technological, medical or scientific research, their claim could be substantial. But why would the Government want to give away money like this?
Essentially it’s because R&D is vital to business growth. Growing businesses make investments and hire more staff, which in turn boosts the UK economy - and the Government’s coffers. However it recognises that innovation can be risky and expensive, hence the offer of tax relief.
How much money can you claim back?
This depends on a number of factors must mainly it’s to do with company size and whether it has previously received any state aid. Broad speaking however there several main things your client can claim for:
1. Staff costs: Your client can claim a proportion of the salaries, employer NICs, pension contributions and expenses back for staff directly working on the R&D project.
2. Agency workers: Up to 65% of costs can be claimed back if your client used a recruitment agency to employ R&D staff.
3. Subcontractors: If your client used subcontractors or freelancers for part of their R&D work these costs can be included too.
4. Utilities and materials: These can be included as long as your client only claims for the proportion that was used up during the R&D work specifically. This would include things like fuel, water, electricity and gas.
5. Software: Your client can claim for any software specifically purchased for the R&D project.
6. Clinical trial volunteer payments.
7. Prototypes: Your client can claim some of the development, building and testing costs for prototypes. However, the benefit will be reduced if they sell, or have sold, their prototype afterwards.
What can small companies claim?
SMEs can typically claim up to 33p for every £1 spent on eligible R&D expenditure. To be classed as an SME, your client must employ less than 500 staff and have either a turnover of under €100m or a balance sheet of no more than €86m. Companies bigger than this will be considered a larger company for the purposes of the scheme. Larger companies will need to claim using RDEC.
You can find out more on our R&D Tax Credits page.
How does Advance Assurance relate to my client’s claim?
If your client achieves their Advance Assurance status successfully, then it means their first three accounting periods of R&D Tax Credit applications will be automatically accepted without having to go through the normal administrative process.
Watch out for the terms and conditions though. Your client must adhere to the parameters of their Advance Assurance as signed off by HMRC. They must also receive their claim within their first three accounting periods.
Advance Assurance is great for speeding through the paperwork and making everything less bureaucratic. It will also be reassuring for your client to know they have that investment, guaranteed, to come.
Who will qualify for Advance Assurance?
To be eligible for Advance Assurance you client’s company must:
- Be applying for R&D tax relief for the first time
- Be classed as an SME
- Be doing, have done or are planning to do research and development activities
Your client won’t be able to achieve Advance Assurance if:
- Their company belongs to a group and another business in the group has received R&D tax relief historically
- They have regularly defaulted on their Corporation Tax payments
- They have partaken in a Disclosable Tax Avoidance Scheme
So, they’ve ticked all the boxes for eligibility - now what?
They’ll need to submit specific information to HMRC in order to pursue a successful Advance Assurance claim. This will be certain pieces of company information like registration paperwork and accounts.
Your client will then need to supply more in-depth information about their specific R&D activities. This will include a specific named company individual who will act as HMRC’s contact for all aspects of their Advance Assurance application. It is essential this person is/was involved in the R&D work itself, and has access to current company information, in order to answer HMRC’s questions.
Does my client have to apply for Advance Assurance?
No, not at all. It’s just meant to be an easier way of doing things, and many companies find it very useful.
How should my client apply for Advance Assurance?
They’ll need to apply online, via the Government Gateway portal, or by post. The HMRC website offers hints, tips and guidance where needed.
Companies are able to do it themselves, but it’s not always straightforward. That’s why we highly recommend working with R&D tax experts like ourselves.
What happens next?
Once HMRC has received your client’s application, they will call to confirm anything they’re unsure of. If your client’s tax situation is a little more complex, an HMRC representative might decide that it would be more efficient to just come by for a visit. The aim is to provide HMRC with everything they need when first applying, so no further questions are asked. Again, this is where working alongside us is often beneficial.
If successful, HMRC will notify your client by post. The letter will discuss what to do if their R&D activities change over time, and what responsibilities they will need to meet to keep their Advance Assurance status active.
Let us help you help your clients with R&D tax relief
Confused or have a question? Myriad Associates are experts in this field and will be pleased to offer advice to meet your client’s requirements. Call the team today on 0207 118 6045 or use our contact form. We deal solely with all aspects of R&D tax relief week in, week out and would be pleased to help.