Quick guide to R&D tax incentives part four: What is Advance Assurance and what does it mean for SMEs?

In this final instalment of our four-part series, we turn to Advance Assurance, which was introduced in 2016 to provide SMEs with the opportunity to guarantee the first three R&D claims they made if “they are in line with what was agreed during the process.”

The intention of the scheme was to try and reduce additional administrative burden arising from the first few years of taking part in the scheme. However, the reality is somewhat different.

How does Advance Assurance work?

To qualify for Advance Assurance, companies must turnover less than £2million and employ fewer than 50 staff. They cannot have made a prior claim for R&D tax credits and cannot be part of a group that has claimed previously.

Prior to making the first R&D tax credit claim, HMRC must be notified that the company intends to apply for Advance Assurance by completing an application form. HMRC will then be in contact and depending on the complexity of the application, this will result in a telephone call to discuss, or in more complex cases may result in a company visit.

If the application is successful, the first claim will be assessed in the normal way and as long as nothing changes during the second and third years, HMRC will accept these claims without any risk of enquiry.

Take-up of Advance Assurance has been remarkably low because, in part, R&D advisors are less inclined to advertise this option due to the potential adverse impact on future fees. Many advisors try to tie their clients into long-term three or even five-year engagements, which Advance Assurance is not compatible with.

Of course, this is not an approach that we at Gateley Capitus advocate; rather we set out the pros and cons of all the options available to a client to ensure the correct decisions are made. With Advance Assurances, we recommend this route only in certain circumstances, but it is worth consideration if the company is a start-up or is in the initial stages of growth.

Want to know more?

The process to claim R&D tax credits is not onerous and, in most cases, can be carried out successfully by a competent professional.

It may look daunting and if you do need some reassurance or would like to discuss the finer points of any part of R&D tax incentives covered in this series, please contact our Head of R&D Tax Incentives Peter Jelfs via Peter.Jelfs@gateleycapitus.com and he will be in touch.

Peter has over 10 years’ experience of providing R&D tax incentive advice to companies. He joined Gateley Capitus from EY, previously working at Mazars and sitting on HMRC’s R&D Consultative Committee. He has also worked as an R&D specialist in HMRC’s Large Business team where he undertook enquiry work and drafted some of the nexus-updated Patent Box guidance. Before entering the world of R&D tax incentives, Peter was awarded a degree in Chemistry from the University of Oxford, which included a year working in a research laboratory, and he is a Member of the Royal Society of Chemistry.

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