The government’s ongoing reform of the UK Research & Development (R&D) tax relief regime has continued with the announcement of The New Targeted R&D Advance Assurance Service - formally referred to as the Targeted Advance Assurance (TAA) service.
Why is HMRC is introducing the Targeted Advance Assurance service?
R&D tax relief has been subject to extensive reform in recent years. HMRC has repeatedly expressed concerns regarding:
The government has already introduced major structural reforms, including the merged R&D scheme and enhanced compliance requirements.
Against that backdrop, the proposed Targeted Advance Assurance service is intended to distinguish genuine innovators from higher-risk claimants at an earlier stage.
In practical terms, The New Targeted R&D Advance Assurance Service is anticipated to allow qualifying businesses to engage with HMRC proactively before making a claim. As a result this will help determine whether projects are likely to satisfy definition of R&D for tax purposes.
What is the Targeted Advance Assurance service?
The existing Advance Assurance service has not been popular and is limited in scope. Furthermore it is limited to Small and Medium-sized Enterprises (SMEs) that are first-time claimants.
The pilot is open to any eligible SME and intended to help HMRC test demand and determine which aspects of the claim businesses place most value on. The pilot scheme runs until May 2027.
However, companies will need to decide which advance assurance service they want to use, as it is not possible to apply under both for the same period or project.
What assurance does the new service offer?
Although full operational guidance is still evolving, the proposal broadly mirrors HMRC’s wider policy objective of providing greater certainty in areas of tax complexity at an early stage.
The service is expected to focus on companies undertaking legitimate R&D activity where there is genuine uncertainty regarding qualification.
The New Targeted R&D Advance Assurance Service is likely to involve HMRC reviewing:
If an advance assurance application is accepted, then businesses can obtain greater certainty that future claims are less likely to face immediate compliance intervention. However this will only be the case where the relevant circumstances remain materially unchanged.
However, the new service is limited to providing advance assurance on a maximum of two areas of the R&D work or project for the same period.
Furthermore, an application can only include one project and one area of R&D relief. Therefore companies seeking assurance on a second project or area will need to submit a separate application.
Which companies are eligible?
A company can apply to use the targeted advance assurance pilot scheme if it:
An application can only include one project and one area of R&D relief. Therefore companies seeking assurance on a second project or area will need to submit a separate application.
How do companies apply?
An application needs to be made online by the company's agent, R&D adviser or an officer within the company.
However your accountant or tax adviser will need to have the appropriate authorisation in place to submit any application on your behalf..
Potential advantages of the new service
For qualifying businesses, The New Targeted R&D Advance Assurance Service could offer several commercial and tax advantages.
Final thoughts
The proposed Targeted Advance Assurance service represents another significant development in HMRC’s approach to handling R&D tax relief compliance.
As scrutiny of claims continues to intensify, The New Targeted R&D Advance Assurance Service could provide much-needed certainty for innovative UK businesses who are legitimately seeking to claim relief whilst avoiding unnecessary and protracted disputes.
However, ultimately the success of any application is still likely to be contingent on the quality of the technical analysis, the strength of supporting evidence and a clear understanding of the statutory definition of R&D.
Therefore, businesses contemplating an R&D claim should ensure that both their technical and financial documentation are prepared carefully before engaging with HMRC under the new regime.
For many companies, obtaining certainty before submitting a claim may prove invaluable, particularly given HMRC’s increasing focus on compliance activity and the significant costs that can arise from defending an enquiry.
As further details emerge, The New Targeted R&D Advance Assurance Service is likely to become an important consideration for innovative businesses seeking to maximise the value of available R&D tax reliefs whilst reducing the risk of future disputes with HMRC.
For more useful information, check out our Ebooks here
And if you'd like to know how we can help you with all of this, or with anything else, feel free to give us a call on 01202 048696 or email us at [email protected].
Alternatively, please feel free to complete our Business Questionnaire here.
Thanks for reading our blog post. Please now read our disclaimer here.