Research & Development (RD) tax relief is a valuable help for many UK companies, usually involving a reduction in their corporation tax liability.
The rules have been around for a long time in various forms but one element that has not changed is the complexity of the rules on eligibility. The good news is that HMRC has launched an advance assurance scheme which allows a business to contact HMRC and get their advice before making a formal claim.
The advantages of this can be considerable:
when you apply for Advance Assurance you’ll have an HMRC specialist to help you understand and comply with the R&D tax relief conditions
Advance Assurance gives proof that the client will get R&D tax relief. This will take the uncertainty out of the process and may help them get funding
this means that for the first three accounting periods of claiming for R&D tax relief, HMRC will allow the claim without further enquiries.
Applying for Advance Assurance is voluntary and can be done at any time before the first claim for R&D tax relief.
HMRC webinar HMRC recently held a ‘talking points’ webinar on this subject. Here are some of the most interesting questions posed by accountants and HMRC’s responses:
Q: How many advance assurance claims have been received so far? A. Currently just short of 200
Q: Can an agent file the advance assurance form through the CT agents’ portal or does it have to be via the client's online service? A. There are three versions of the form. One can only be accessed using the company login details, the other two are a print and post version.
Q: Are agents able to be contacted for the follow up phone call rather than the company directly? A. Yes although we would always like to talk to the person at the company who has been involved in the R&D activity. We have successfully used conference call facilities so that everyone is involved.
Q: This does not apply to sole traders. Correct? A. R&D relief is only available to companies.
Q: If a company has sought advance assurance and subsequently commences a new R&D project, will the company have to seek further assurance with regards to this new project? A. No, the Assurance relates to the company. HMRC will grant assurance when it is content that the company has understood the rules and is in a position to make a competent claim. The assurance is not project specific.
Q: If an Advance Assurance case is withdrawn does that mean the client will be denied R&D on an annual basis? A. If HMRC reject an application or withdraw Assurance this does not prevent the company from making R&D claims. These claims may be subject to a compliance check. This may depend on why the assurance has been rejected or withdrawn.
Q: Is the Advance Assurance available for SMEs who have previously claimed R&D on an earlier, different project? A. No, the assurance is currently only for companies who have not previously claimed.
Q: What proportion of the advance assurance requests lead to a claim (ie HMRC agree the company has a valid claim)? A. Current figures show that more than 75% of applications have been granted. However, as previously mentioned lack of assurance does not prevent a company from making a claim: they just won’t have the assurance that the claim will be processed without detailed scrutiny.
Q: What is the timescale on getting assurance from HMRC? A. Initial contact will be made within 15 days. Depending on what additional information is required the assurance decision will be made at the earliest opportunity.
Q: Will advance assurance be available for LLPs? A. Advance Assurance is given in respect of R&D reliefs. In order to claim R&D reliefs the claimant must be a company within the charge to CT in respect of profits charged to CT. Although an LLP is regarded as a body corporate, for tax purposes an LLP is normally treated as a partnership and the members of the partnership are charged to either Income tax or Corporation tax. Companies as members of the partnership may carry out R&D and the company can claim the appropriate proportion of the R&D relief. So no, an LLP cannot apply for Advance assurance but the companies within an LLP can.
Q: How far in advance can the assurance be obtained? Can it be when we are preparing the CT return? A. Advance Assurance can be applied for as soon as the company has an R&D project.
Q: Why are HMRC not able to give clearance rather than assurance with this scheme? A This is a voluntary assurance process.
Q: Is there advance assurance for SMEs over £2m turnover and 50 employees? A. Not at present although HMRC will provide advice on specific questions in order to assist.
Q: If you don't give Advance Assurance, can we appeal your decision? A. No, this is not an appealable decision.
Find out more about future and past HMRC Talking Points, including Penalty for participating in VAT fraud: A consultation on the introduction of this new penalty which will take place on 3 November between 12:30 to 13:30.