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 out of roughly 11,500 eligible customers. 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.

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.

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.

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.

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.

International Context

The UK is not alone in seeking to refine its R&D tax relief system. One welcome aspect from the consultation is that HMRC have compared the proposed UK process to those in other countries. Many countries have implemented similar measures to ensure that R&D incentives are both effective and secure. For instance, countries like Canada and Australia have established advance assurance systems to provide businesses with greater certainty and reduce administrative burdens. By considering international practices, the UK aims to align its approach with global standards, ensuring competitiveness and fostering innovation as well as learn from successful models and avoid pitfalls experienced by other nations.

Role of agents

Agents play a significant role in the R&D relief process. The consultation considers how agents can be involved in the clearance process, ensuring that they support competent and ethical practices. HMRC is interested in feedback on how to make it harder for unscrupulous actors to exploit the system.

Next Steps

The consultation runs until 26 May 2025 and seeks responses from businesses of all sizes that are claiming or planning to claim R&D reliefs as well as interest groups, representative bodies, industry bodies and agents. Read the full consultation document.

You can respond directly to the consultation online. Alternatively, our expert team will be playing its part in this process, and if you have any specific comments you would like us to consider for our formal response please get in touch with james.rolfe@bdo.co.uk or romane.reeves@bdo.co.uk.