What is advance assurance for R&D tax relief?

Advance Assurance is only available to small businesses that are claiming R&D tax credits for the first time. In fact, only the smallest companies are eligible. If you have a turnover of fewer than 2 million pounds and fewer than 50 workers and are a first-time claimer, then you should be able to apply for Advance Assurance.

While the number of small businesses claiming R&D tax credits has risen to 76,225 in 2019/20, HMRC is concerned that thousands of companies are still missing out on the scheme. For this reason, the British government has established various initiatives, such as Advance Assurance, to raise awareness of the scheme and encourage participation.

First launched in 2015, Advance Assurance was set up to guide first-time claimers through the application process, and for the successful applicants, assure their claims.

You can apply for Advance Assurance if you are:

• an SME with a turnover of less than £2m and fewer than 50 workers.
• planning to do R&D or have already carried it out.
• part of a group, and none of the companies linked to you have made a claim before.

You can’t apply if you are:

• entered into a Disclosable Tax Avoidance Scheme.
• a corporate serious defaulter.

• First, you need to complete an online form.
• You will need your company accounts, your company registration documents (from Companies House), HM Revenue and Customs (HMRC) correspondence, previous company tax returns (not needed for new companies) and the name of a contact to discuss the R&D activity and application with HMRC. 
• You will also need to give basic information about your company and detailed information about your R&D activities.
• Once you’ve applied, a specialist from HMRC will give you a short telephone call. It’s recommended that they talk to your company’s R&D project manager. This is because HMRC will quiz you about your R&D in more detail, ensuring you can identify the R&D correctly. If the specialist is still undecided or the case is complex, they might visit your company.
• Following this, HMRC will send you a letter saying whether your application for Advance Assurance was successful or not.
• They also might contact you after you’ve submitted your first claim for R&D tax relief to make sure it matches the details in your Advance Assurance application.

Suppose you’re successful and get Advance Assurance before submitting your first R&D tax credit claim. In that case, the normal administrative procedure will not apply to your first three accounting periods, i.e. your first three R&D tax credit claims. You’ll still need to submit your R&D tax credit claim at the right time, but it will be automatically approved.

There are, of course, conditions attached to this. You must follow the guidelines for your Advance Assurance discussions filed with HMRC and claim within the first three accounting periods as agreed upon.

Also, if you are a small business that fits the criteria you are not required to request Advance Assurance. You can always self-file or get help from an R&D tax credit adviser like EmpowerRD.

The most significant advantage of Advance Assurance for small businesses is that it guarantees that you’ll have money coming into your business over a three year period.

This steady flow of guaranteed investment puts you in a unique position, especially as a startup because it allows you to plan ahead, focus on growing your business, and reinvest back into innovation.

Advance Assurance is dedicated to assisting businesses in their early phases of growth. At this time in a company’s development, very few are concerned with R&D. Likewise, if you are a business that is R&D focused, it would be unusual for you to have a three-year strategy for your research and development projects.

Therefore, inviting a thorough evaluation of your claim at such an early stage, when it is probable that your project and/or expenses will alter drastically throughout the three-year term, would minimize the advantage of Advance Assurance.

It’s also likely that your claim will develop as your business expands. Advance Assurance aims to make the process of claiming simple and hassle-free, but if you have to file a new claim a year after applying for Advance Assurance, its purpose becomes irrelevant.

Even if you have Advance Assurance status and don’t have to submit a full report, you will still need to show HMRC evidence that you’re conducting R&D activities. This implies that the program does not lower the administrative burden and, in some cases, maybe more time-consuming than filling out a full claim.

If you’re a first-time claimer and still unsure whether your company qualifies for R&D tax credits, get in touch with us at EmpowerRD, and we’ll be happy to assist you in determining whether you qualify.

If you’d want to learn more, see whether your business is eligible and what expenses qualify for R&D.