A Complete Guide to R&D Advance Assurance for SMEs
- Omar Aswat
- Sep 17, 2024
- 6 min read
Updated: Jan 5
For small and medium-sized enterprises (SMEs), accessing Research and Development (R&D) tax relief can be a valuable source of funding, allowing companies to innovate and grow.
However, the process of claiming R&D tax credits can be complex, and many businesses hesitate to apply for fear of making errors or triggering HMRC enquiries, especially in light of activity in the last 18 months.
To simplify this process, HMRC offers an initiative called Advance Assurance. The scheme guarantees R&D tax relief claim approval for three years if claims match the agreement in the application.
At ASWATAX, we understand the intricacies of R&D tax relief and have extensive experience assisting clients with their claims. Whether you're new to claiming or already familiar with the process, we’ll guide you through Advance Assurance and help you secure the tax benefits your R&D efforts deserve.
In this blog post, we’ll explain what Advance Assurance is, how to apply it, and the key benefits and limitations of the scheme, helping you determine if it’s the right choice for your business.
Table of Contents
What Is R&D Advance Assurance?
HMRC offers Advance Assurance to help SMEs feel confident their R&D tax credit claims will be processed smoothly. Once granted, HMRC won’t investigate R&D claims for three years, if they match the agreed Advance Assurance details.
This gives businesses security and predictability, helping them claim tax relief without fear of future disputes or delays. Advance Assurance guarantees three claims, but companies must still submit R&D claims through their Corporation Tax return and form.
Who Can Apply for R&D Advance Assurance?
Not all businesses are eligible for Advance Assurance.
To qualify, your company must meet specific criteria set by HMRC. To be eligible, a company must be classified as an SME, which means it must have fewer than 50 employees and an annual turnover of less than £2 million. Additionally, the company must not have previously claimed R&D tax relief.
If the business is part of a larger group, none of the linked companies should have made a claim for SME R&D tax relief in the past. Furthermore, companies that have participated in a Disclosable Tax Avoidance Scheme (DOTAS) or are classified as corporate serious defaulters are not eligible for the scheme.
It’s also worth noting that the Advance Assurance scheme is specifically for businesses that are applying for SME R&D tax relief. Larger businesses, or those that do not qualify under the SME definition, may need to apply for Research and Development Expenditure Credit (RDEC) instead.
How to Apply for Advance Assurance
Applying for Advance Assurance is a swift process, but it does require careful preparation. Companies can submit their application using HMRC’s online form through a Government Gateway account, or they can print the form and post it directly to HMRC’s Advance Assurance team.
The application requires company accounts, Companies House documents, and any HMRC correspondence related to previous R&D tax relief claims. The company must appoint a key contact familiar with its R&D activities to speak with HMRC if more details are needed.
After submitting the application, HMRC contacts the business to schedule a call and discuss R&D activities in more detail. For some companies, this process is quick, while others may require more in-depth conversations with HMRC. After these discussions, HMRC will either grant the company Advance Assurance or explain why the application was unsuccessful.
What is Advance Assurance
HMRC’s Advance Assurance decision is final, companies can’t appeal or reapply once their application has been refused. However, an unsuccessful application does not prevent the company from making an R&D tax relief claim through the usual channels. Getting this right from the start helps the business secure three years of cover and ultimately provides peace of mind and certainty.
Benefits of Advance Assurance for SMEs
The Advance Assurance scheme offers several key benefits for SMEs, particularly for those new to the R&D tax relief process. One of the most significant advantages is that HMRC guarantees acceptance of R&D tax claims for the first three accounting periods. This eliminates the risk of time-consuming investigations or disputes with HMRC, allowing businesses to focus on innovation rather than compliance.
For companies in their early stages, access to timely and reliable funding is essential. R&D tax relief can provide a much-needed financial boost, helping businesses to invest in new technologies, products, or services. Advance Assurance lets companies confidently budget, knowing HMRC will approve claims that match the initial agreement.
Additionally, the security provided by Advance Assurance can be valuable when seeking investment. Having a guarantee from HMRC that future R&D claims will be accepted allows businesses to present a more reliable financial forecast to potential investors, helping to attract funding and secure business growth.
Moreover, applying for Advance Assurance at the outset means that companies can avoid rushing their R&D claims. Many businesses delay R&D claims until their first tax return, often resulting in avoidable mistakes or missed information. Advance Assurance helps companies plan R&D claims early, improving accuracy and ensuring they get the full benefits. We handle most of the work during Advance Assurance, making the rest of the R&D claim process much smoother.
Limitations of Advance Assurance
While Advance Assurance offers several clear benefits, there are also limitations to be aware of.
One key challenge is predicting R&D spending for the next three years when applying for Advance Assurance. Many companies start with a clear R&D plan, but things can change. Shifts in business direction or funding may cause actual R&D spending to differ from the original application. If this happens, HMRC may still question the claims, even if the business has received Advance Assurance. This doesn’t mean the claims will be rejected, but it can slow down the process and lead to additional scrutiny.
Another limitation is that Advance Assurance doesn’t eliminate the need for detailed R&D claims each year. Even with Advance Assurance, the company must submit a full R&D tax relief claim with all required documentation and evidence. This includes proof of eligible R&D activities and associated costs. Some businesses mistakenly think Advance Assurance removes the need for supporting documents, but that’s not true. Failure to prepare detailed claims can result in delays in receiving tax relief or even the rejection of the claim.
Finally, Advance Assurance only applies to the first three accounting periods. After this period, businesses must follow the usual R&D tax relief process, which may include enquiries from HMRC. By then, companies should understand the process and have systems in place to ensure claims are accurate and HMRC-compliant.
How ASWATAX Can Help
Navigating the Advance Assurance process can be daunting, especially for businesses that are new to the world of R&D tax relief. At ASWATAX, we’ve helped countless SMEs secure Advance Assurance, ensuring that their claims are accepted by HMRC without issue. Our tailored approach involves getting to know your business, understanding your R&D activities, and guiding you through every step of the process.
We provide education on the R&D tax credit rules, helping you identify which of your projects are eligible for relief. We also share insights on the expressions and writing styles that tend to trigger concerns with HMRC, ensuring that your application is clear and compliant. In addition, we offer a mock phone call service to prepare your business for the discussion with HMRC, using our 15 years of experience to anticipate the questions you may be asked.
We’ve handled R&D claims across various industries. Our in-house experts ensure your Advance Assurance application is managed professionally and efficiently. You can feel confident knowing future R&D claims will be accepted, giving you peace of mind from the start.
Whether you’re preparing your first claim or planning for future submissions, our expert team is here to help.
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Get in Touch
If you have any questions about Advance Assurance, or if you’re ready to start the application process, get in touch with our experienced R&D team at ASWATAX. We’re here to guide you through the complexities of R&D tax relief and help your business unlock the funding it needs to innovate and grow.
We not only prepare and submit claims for our clients but also successfully defend claims against HMRC enquiries for external businesses. So, if another provider prepared your claim, we're happy to step in and defend it on your behalf.
Following our initial review, we make it clear from the outset whether it is a claim we would want to be involved in or not. Our involvement can give you confidence that we believe there is full scope to further a claim
Email: omar@aswatax.co.uk
Meet Omar Omar is a Chartered Tax Advisor (a.k.a an expert on tax issues) and founder of ASWATAX. He regularly shares his knowledge and best advice here in his blog and on other channels such as LinkedIn. Book a call today to learn more about what Omar and ASWATAX can do for you.
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