If your business is considering its first claim for Research and Development (R&D) tax relief, navigating the Advance Assurance (AA) process is critical. This HMRC scheme offers companies a smoother path for their first three R&D claims, ensuring that if accepted, they will not be subject to extensive scrutiny - provided claims remain consistent with the approved application. Here's everything you need to know about the Advance Assurance process, the steps involved, and how to make the most of it.
Applying for Advance Assurance?
Advance Assurance is targeted at small and medium-sized enterprises (SMEs) that have either; never claimed R&D tax relief before or have not claimed in the last three years, and have fewer than 50 employees and an annual turnover of less than £2 million
Large companies claiming under the RDEC (Research and Development Expenditure Credit) scheme are not eligible, and in most cases SMEs that have previously claimed R&D tax relief within the last 3 years do not need to apply.
Once approved, Advance Assurance gives companies three accounting periods of security, meaning that their R&D claims will be accepted by HMRC without further scrutiny unless their activities deviate from what was outlined in the application.
Step-by-Step Guide to the Advance Assurance Process
1. Preparing and Submitting the Application
To apply for Advance Assurance for R&D tax relief, the first step is to gather and submit the necessary information to HMRC through their online service. You’ll need your Government Gateway user ID and password to access the form (or you can create one if needed).
You can apply here: https://www.gov.uk/guidance/research-and-development-tax-relief-advance-assurance
When applying for Advance Assurance for R&D tax relief, you will need to submit the following documents and details to HMRC:
Latest financial statements. tax return (if applicable).
Company registration documents.
Main contact with direct knowledge of the company’s R&D activities, such as a research manager or director. This person may be required to discuss the application with HMRC.
Provide an in-depth description of the R&D projects, including:
The scientific or technological advances sought.
The uncertainties involved.
How the project plans to overcome these uncertainties.
Why the knowledge sought is not readily deducible by a competent professional.
Breakdown of R&D costs, such as, Labour, Consumables, Sub-contracting and software – although only totals and estimates appear reasonable.
You will also need to declare whether the company has received any grants or subsidies, such as from Innovate UK.
It’s important to ensure all the details are accurate and aligned with the criteria for qualifying R&D because the business will be later quizzed on its content. Mitchells can assist in preparing this documentation to avoid errors.
2. HMRC’s Follow-Up Call or Meeting
After receiving your application, HMRC will arrange a call or meeting to clarify certain aspects of your R&D project. This is a collaborative process designed to make sure HMRC understands the scope of your work, albeit don’t be fooled! During the 1-hour call, HMRC will likely ask about:
What scientific or technological advances your project seeks.
What uncertainties your project addresses.
Why these challenges go beyond the capability of a competent professional.
Your understanding of what costs can be claimed.
Your understanding of the scheme being used.
HMRC may also request additional information at this stage, so it’s essential to have everything prepared in advance to avoid delays.
Remember your focus must not be on the commercial aspects of the project, you must focus on the scientific and technological impact to the wider community.
Mitchells can participate in the call as a mediator, which has proven to be an effective approach.
3. HMRC’s Decision and the Acceptance Letter
Once HMRC is satisfied with the information provided, they will issue an Advance Assurance Acceptance Letter, confirming that your R&D claims for the next three periods will be accepted. These three periods begin from your first accounting year of claim, for example, 31/05/24, 31/05/25, and 31/05/26.
An example from the acceptance letter might state: “"Based on the information you have given me, I believe that the company will be able to make a successful claim for R&D expenditure credit. I can confirm that I will not open an enquiry into the company’s claim for R&D expenditure credit for the period ended 31 May 2024 and for the next two periods."
If your application is rejected, your business can still submit R&D claims, but you should expect a higher likelihood of an HMRC enquiry. This means that HMRC may scrutinise your claims in detail and request additional supporting evidence before approving the claim.
The Additional Information Form (AIF) and R&D Report Submission
Receiving Advance Assurance doesn’t mean the process ends there. After getting approval, your company still needs to submit an Additional Information Form (AIF) (pre submission of the CT600) and an R&D report, which must be attached to your CT600 (corporation tax return).
The AIF and R&D Report play a key role in demonstrating how your activities align with HMRC’s qualifying criteria for R&D tax relief. Without these documents, or if the details provided do not match the information in your original Advance Assurance submission, your claim could be delayed or rejected.
The Merged R&D Scheme (Effective April 2024)
From April 2024, the UK government is introducing a merged R&D tax relief scheme, combining the current SME and RDEC (Research and Development Expenditure Credit) schemes. This unified framework is aimed at applying consistent rules across both SMEs and larger companies.
Current Tax Relief Rates (April 2023):
As of April 2023, the SME scheme offers an 86% uplift. This means companies can deduct £186 from their taxable profits for every £100 of qualifying R&D spend.
For loss-making SMEs, the repayable tax credit has dropped to 10%, down from the previous 14.5%.
If a company’s financial year straddles April 2023, they can still claim R&D costs at the 130% uplift for the period before April 2023, while post-April 2023 costs will be claimed at the 86% uplift rate.
The RDEC scheme rate has been 20% since April 2023, allowing companies to claim a 20% credit on qualifying R&D expenditure.
What Will Change Under the Merged Scheme (April 2024)?
Both SMEs and larger companies will claim R&D tax relief at the 20% credit rate, which is aligned with the current RDEC scheme. As with RDEC, his rate applies above-the-line, meaning companies can claim 20% of their eligible R&D costs to offset tax liabilities or receive as a cash credit if they are loss-making.
Note that the position is different for R&D-Intensive companies, these are businesses where qualifying R&D expenditure makes up at least 30% of their total operating costs.
Relief for SMEs with Grant-Aided Funding:
Currently, in most cases, SMEs that receive grant funding must claim under the RDEC scheme for the funded portion of their project. This will remain in place under the merged scheme, where the 20% RDEC rate will continue to apply for grant-funded R&D activities.
How Mitchells Can Help Your Business
Navigating the R&D tax relief process, particularly with the new Advance Assurance requirements and the upcoming merged scheme, can be challenging. At Mitchells, we offer expert guidance at every stage of the process. Our expertise ensures that your R&D claims are optimised while complying with the latest regulations. Contact us today for personalised advice on your R&D tax relief claims and the Advance Assurance process.
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