UK and International Tax news

Research And Development Advance Clearances

Tuesday 29th April 2025

HMRC is seeking views on widening the use of advance clearances for R&D tax reliefs to reduce error and fraud, provide certainty to businesses and improve taxpayer experience.

The consultation aims to explore in particular options to reduce error and fraud, and to receive views on whether a system of advanced clearances would deliver these aims and the best way to design and operate such a system.

HMRC says it is committed to periodically evaluating the R&D reliefs to ensure they are as effective as possible and underpinned by a credible, up-to-date evidence base.

In 2020, HMRC estimates that the RDEC scheme incentivises £2.40 to £2.70 additional R&D for every £1 of public money spent, and in 2019 estimated that the SME scheme incentivises £0.60 to £1.28 additional R&D for every £1 of public money spent.

The current R&D tax credits system attempts to balance prompt payment of relief for most claimants with identifying and addressing risks. The company submits an R&D tax relief claim in its self-assessed CT return, either when it is made, or by amending it later. All claims are risk assessed and where risks are identified, HMRC opens checks within established legislative time limits.

Generally, HMRC has 12 months from the date of the claim being submitted to open a check and the majority of compliance checks are opened within this period. The length of an enquiry will vary from case to case and where errors are found in the claim, it is possible that HMRC will look into previous years, as far as four years and in some instances as much as 20 for the worst behaviour.

HMRC recognises the importance of certainty to businesses and aims to identify the need for a compliance check early and, where possible, before any payment is made. Depending on the type of risk or behaviour identified, HMRC will also open some compliance checks post-payment. Post-payment checks have the advantage of enabling the majority of taxpayers to receive payment quickly but can result in uncertainty for taxpayers about whether their claim might later be found to be non-compliant and their payment recovered.

The concern that uncertainty may discourage legitimate claims is not new. To address this, voluntary ‘advance assurances’ were introduced by HMRC several years ago for smaller companies (those who have not claimed before, and who have 50 employees or fewer). Following submission of information, they are invited to discuss their claim with HMRC and then, if successful, given a degree of assurance that the claim will not be subject to enquiry for three years, provided the R&D undertaken is consistent with the initial information provided.

Companies which are refused an assurance are free to proceed and claim as part of their CT600 return if they believe their project does qualify for relief. These claims are then considered in the normal way, and as described above, a compliance check may be opened where risks are identified.

The current advance assurance service was originally limited to the former SME scheme. With its replacement by the merged RDEC and ERIS schemes, it has been extended to both reliefs, although the focus currently remains on smaller businesses, being those with turnover below £2m and fewer than 50 employees, who have not previously claimed.

However, the advance assurance service has seen low and declining take-up, with around only 80 applications received in 2023 to 2024 out of approximately 11,500 taxpayers who were eligible to apply.

Some of this may be due to lack of awareness. HMRC has included references to advance assurances in a recent communications campaign and within the claimant support packages, which have been rolled out to a small population on a trial basis. HMRC is monitoring whether this has any impact on uptake but would like to understand more broadly what works and what doesn’t about this service. While any new service might not be based on the current assurances service, it is the closest thing HMRC currently operates.

The government believes that there are three stages at which a form of assurance may be useful, being

  • at an early stage, when research activity has not started or has only recently begun (‘pre-activity’)
  • when activity is well underway but before the claim is made (‘pre-claim’)
  • when a claim has been made but before payment (‘pre-payment’)

The consultation invites online responses by all interested parties by 26 May 2025.

 

If you would like more information on the above, please contact Keith Rushen on 0207 486 2378.

 

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