What is the R&D tax relief Advance Assurance option?
HMRC currently offers its additional Advanced Assurance option specifically to SMEs that are making their very first claim for R&D Tax Credits.
First off, what are R&D Tax Credits?
Research and Development (R&D) Tax Credits were launched in the year 2000 to offer companies an innovation incentive via the UK tax system. Unfortunately, over the years many business have missed out as they didn’t realise that the R&D activities they were engaged in were eligible for this relief. Regardless of the sector your client is in, or how much R&D has taken place, it's well worth them claiming as if they don’t they could be missing out on some serious cash.
The way it works is that eligible companies receive additional tax relief on their qualifying R&D costs. This effectively means they reduce their Corporation Tax bill by cutting down their taxable profits, or they create or increase tax losses. These losses can generally then be sacrificed to HMRC in return for a lump sum repayment.
The amount of relief on offer is pretty generous too. For example, an SME that has £100k of eligible spend on materials and wages could save around £25k in tax. Companies that are eligible can also submit a claim that goes back two financial years, which for first time claimants can be a massive help.
Relief can be available on any of the following:
- Staff costs (including certain expenses that were reimbursed by the employer to the employee)
- Pension contributions made by the employee, and NICs (but not benefits in kind)
- Consumables that were used up specifically in the R&D process (for example raw materials, tools and prototypes)
- Fuel, power, heating and water used directly in the course of the R&D activities
- Subcontractor and agency staff costs where they were specifically carrying out R&D
- Computer software
What effect does Advance Assurance have on a claim?
If your client successfully achieves Advance Assurance before submitting their first claim for R&D Tax Credits, then their first three accounting periods will be accepted straight away without the normal administrative process. This in effect means that although the claim still needs to be submitted at the correct time, it will automatically be accepted.
There are of course certain stipulations attached to this. For instance, a company must adhere to the parameters of its Advance Assurance discussions that they’ve already had endorsed by HMRC, and the claim must be made within the company’s first three accounting periods.
Advance Assurance is understandably very popular, as it not only saves time and hassle in terms of ticking off all the paperwork and providing evidence, it is also a weight off the minds of many business owners who then know they have guaranteed investment coming in.
Who is eligible for Advance Assurance?
To qualify for Advance Assurance, the company in question must:
- Be applying for R&D Tax Credits for the first time
- Have carried out (or are currently carrying out) research and development projects
- Be an SME
Who is not eligible?
A company will not be able to qualify for Advance Assurance if:
- It belongs to a group and one of the businesses it is connected to has claimed R&D tax relief before
- The company is in a Disclosable Tax Avoidance Scheme
- Your client is “a corporate serious defaulter”
My client seems to fit the bill, so how do they claim?
Companies looking to make a successful claim for Advance Assurance must provide specific information to HMRC in order to proceed. This generally involves registration documents and accounts information.
Then they will need to provide more in depth information about their specific R&D activities. This means putting forward the name of an individual who will take on the role of the company’s contact with HMRC about the Advance Assurance application. This person needs to have been involved in the R&D project. They must also be able to access current information about the R&D and answer any questions HMRC may have regarding the application.
Do companies have to apply for Advance Assurance?
No, there’s no legal requirement that says first time R&D Tax Credit applicants must request Advance Assurance. It’s simply an option that many companies take advantage of.
How is an application for Advance Assurance made?
This can be done by completing a form that can be either filled in online, via the company’s Government Gateway portal, or printed out and posted once it’s been completed onscreen. HMRC’s webpage on Advance Assurance offers plenty of information about what’s required. Clients are free to attempt the application themselves or you as their accountant can do it for them. Alternatively, we can complete it with them as R&D tax experts.
What will happen next?
Once HMRC had received your client’s application they will make contact by phone to confirm this and ask anything else they need to know. If your client has a particularly complex tax situation, this phone call with HMRC could well be quite a long one or indeed HMRC might decide that it would be more efficient to simply pay a visit so things can be clarified face to face. The idea is to provide HMRC with everything they want on first application, making further enquiries less likely.
HMRC will then write to the company by post to explain whether or not it was successful. This letter will also provide further information about what to do if the company’s R&D activities change over time, as well as any responsibilities the company has with regard to its Advance Assurance Status.
Have any questions or concerns?
Tax Cloud UK is part of Myriad Associates, an expert team of experienced R&D tax consultants. We will be pleased to answer any questions you may have, allay any fears and work with you to facilitate your R&D Tax Credit application to give you the best chance of a success and maximising your claim.
Sign up to Tax Cloud to today to begin your R&D claim. With separate service offerings for both businesses and accountants, using Tax Cloud is a fast and accurate way of claiming R&D tax credits in 2019.
To discuss anything further, call us on 0207 118 6045 or use our contact page for excellent quality, professional advice.