R&D tax relief advance clearances

Claims for Research and Development (R&D) tax relief can be highly beneficial for businesses, but making a valid claim can be complex. To help address this, HMRC has for many years offered an “advance assurance” mechanism to give businesses more certainty over their claims. However, uptake of the existing advance assurance scheme is incredibly low - only around 80 applications were made in 2023/2024. The current process can be difficult to use and does not offer full certainty to businesses.

Recognising this, the UK Government has launched a consultation to explore implementing an improved clearance system for R&D tax reliefs, which it sees as an important tool in supporting economic growth. The objective of the consultation is to determine whether a system of clearances can effectively reduce error and fraud in R&D tax reliefs and provide businesses with greater certainty.

Why this is important for you

For many years the potential for error and fraud has been heightened partly due to the complexity of R&D tax relief. The ability to seek advance clearances is welcomed, and we encourage readers to participate in the consultation process.

Scope of the consultation

The Government is interested in understanding the effectiveness of different clearance system designs. This involves evaluating various approaches to see which, or a combination of them, can best achieve the consultation's objectives. It is at a very early stage of the legislative process and no time frame has been given for the introduction of a new clearance system.

Voluntary or mandatory assurances?

The consultation explores the benefits and drawbacks of voluntary and mandatory assurances. Voluntary assurances might appeal to companies seeking certainty, while mandatory assurances could be more effective in reducing fraud and error – both routes may be adopted.

Voluntary assurances would allow companies to seek clarification on their eligibility for R&D tax reliefs before making a claim. This option is designed to provide businesses with greater certainty and confidence in their claims, potentially reducing errors due to misunderstanding or misinterpretation of eligibility criteria. Additional clarity for taxpayers would clearly be welcome, but we have voiced concerns in BDO’s formal response (see below) about HMRC’s ability to resource such a service adequately – significant delays in issuing advance assurances would often negate their value.

The Government is also considering whether to make advance clearances mandatory for businesses in sectors with a history of high non-compliance. This approach aims to tackle deliberate non-compliance by ensuring that claims are scrutinised before approval. Mandatory assurances could help prevent fraudulent claims and ensure that reliefs are granted only to eligible projects. Similarly, we can see benefit in first time claimants being mandated to seek assurance – this should considerably reduce the error rate for claims.

Stages of Assurance

The consultation considers three stages at which assurance could be provided:

• Pre-activity: Early discussions between companies and HMRC to identify and address uncertainties before R&D activities commence.
• Pre-claim: Assurances sought closer to the time of claim, when R&D activities are underway, providing more detailed scrutiny.
• Pre-payment: Companies could request checks before payment of credits due to ensure that claims are compliant, reducing the risk of having to repay funds later.

We can see significant benefit in pre-activity advanced assurances where they are focused on specific technical areas as they could be fundamental to the potential claim – for example, on contracted-out R&D and whether the limited exemptions apply to planned overseas activities. 

Pre-claim advance assurance could also be useful, particularly if the assurance provided is binding for HMRC. We believe pre-claim advance assurance should be on both a voluntary and mandatory basis to be equitable, although there is a risk of potential duplication of time and cost in preparing the claim – and this could prove to be unfair where mandatory advance assurance applies. A sensible solution is to remove the need to submit a Claim Notification Form for claims where the same details have already been submitted for advance clearance purposes as it is also desirable to ensure that the administrative burden is kept to a minimum.  

Post claim but pre-payment assurance reviews would have no benefit in our view. We have pointed out to HMRC that at this stage, the claim itself should be sufficient, and that HMRC should devote more resources to reviewing and processing claims quicker, rather than adding an additional scrutiny process.   

Eligibility criteria

The Government acknowledges that full advance assurance for all claims is not feasible due to limited resources and expertise within HMRC. Therefore, the proposed clearance system will target intervention carefully, focusing on a well-defined subset of claims and companies.

For the voluntary scheme, the consultation seeks feedback on whether it is best to focus the clearance scheme on growing and high-potential companies, as well as sectors identified in the Government's Industrial Strategy. Mandatory assurances are expected to be targeted at sectors with high non-compliance rates.

Another alternative we have suggested is to for clearances to initially focus on specific technical areas within the rules rather than the whole breadth of the R&D scheme. This would allow HMRC to phase in advance assurances and learn lessons from user feedback as it goes. As its resources expand, it could then expand the range of technical areas covered. Even if a sector based system is adopted, it would be best for this to be phased in gradually as HMRC resources allow so that the taxpayer experience of the scheme is a good one. If the scheme operates poorly, this quickly becomes widely known and deters take-up. 

Deliverability

Another potential move to improve deliverability is the proposal to introduce a de-minimis threshold for R&D claims. When introduced, the SME R&D scheme included a de-minimis threshold for qualifying spend set at £25,000, which was later reduced to £10,000 before being removed altogether. Reintroducing a threshold could exclude claims below a certain expenditure level, freeing up HMRC resources to focus on larger, more impactful claims. The threshold is being considered because smaller claims often have higher levels of error and fraud, and it is anticipated that significant R&D is unlikely to occur below this expenditure level.

We agree such an approach is sensible but have suggested to HMRC that special cost aggregating rules should apply to new claimants where a project may incur costs over £25,000 in total but not in the first accounting period. 

Making advance assurances work

In our view, any advance clearance process should have specific time deadlines for HMRC to respond – without this we believe that taxpayers would be reluctant to apply for voluntary assurance, and we could see delays in mandatory assurance clearances delaying R&D projects. 

Similarly, it would make sense for HMRC to prove some form of binding guarantee that where advance assurance is given, it will not subsequently launch an enquiry into the R&D claim unless the facts or circumstances have materially changed. 

Next steps

You can read the consultation questions and our full response here. 

There is no formal timeline for the introduction of new R&D advance assurances, but we will update this page as more news on the project becomes available. In the meantime, if you have any concerns over the eligibility of your R&D claim, please contact james.rolfe@bdo.co.uk or romane.reeves@bdo.co.uk.