HMRC consultation on R&D advance assurance: The next phase in scrutiny?

Thousands of organisations use the Government's R&D tax relief regime each year, to claim a deduction against their corporation tax bill or receive cash credit in recognition of spending on innovative activities. In recent years, HMRC has taken several steps to increase scrutiny of these claims, including the introduction of the 'additional information form' and an increase in enquiry activity. 

What is the advance assurance scheme?

Increased scrutiny has left many organisations uncertain about whether their claim will be approved. HMRC's 'advanced assurance' scheme aims to provide organisations with more certainty by giving them the opportunity to ask HMRC if their R&D tax relief claim will be accepted, before claiming tax relief.

If HMRC considers the claim valid, they guarantee it will be accepted, providing it is consistent with the details included in the application. The advance assurance agreement then applies for three accounting periods.

But, the scheme is restricted to certain types of organisations - and uptake is low.

Organisations can only use the scheme if they are first time claimants, have turnover of less than £2 million, and have fewer than 50 employees. Even after taking into account  the restrictive entry criteria, HMRC notes that only 80 advance assurance applications were received in 2023 to 2024, out of approximately 11,500 customers who were eligible. 

Based on discussions with our clients, in addition to the restrictive entry criteria, concerns over increased administrative burden are a core reason for not using the scheme.

What changes are being considered?

 The latest consultation indicates that the Government considers increased uptake of the advance assurance scheme crucial - not only to help organisations gain greater certainty on the validity of their R&D tax relief claims, but as a tool to increase compliance and spot erroneous and fraudulent claims.

 Specifically, HMRC is inviting comment from claimants and other stakeholders around:

• who should be eligible for voluntary advance assurance

• whether targeted mandatory assurance rules should be introduced

• the stage at which assurance should be considered in the R&D process

• whether there should be a minimum spend for making an R&D claim.

Could advance assurance become mandatory?

Perhaps the most significant aspect of the consultation is HMRC's consideration of requiring certain organisations to seek advance assurance, if they want to make a valid claim. Details about the type of organisations this would apply to haven't been shared, but sectors where HMRC suspect a significant degree of non-compliance could be included.

For example, HMRC are known to be sceptical of claims made in sectors such as care homes, pubs, restaurants and retailers. However, based on current enquiry activity, we are also aware that claims in the software sector are often challenged.

If mandatory advance assurance is applied to sectors or types of activity where R&D tax relief claims are common, this could be the most significant change to the regime since its introduction. Mandatory advance assurance would be a radical deviation from one of the core principles of the UK’s tax system: the notion of self-assessment.

This highlights just how important it is for organisations to share their views as part of the consultation.

Timing options

HMRC are also inviting views on the most appropriate timing of any advanced assurance process, including several options which they acknowledge each have their pros and cons:

• Option 1: at an early stage, when research activity has not started or has only recently begun (‘pre-activity’)
• Option 2: when activity is well underway but before the claim is made (‘pre-claim’)
• Option 3: when a claim has been made but before payment (‘pre-payment’)

Possible minimum spend

HMRC are inviting views on excluding claims for R&D tax relief where spend is below a minimum expenditure threshold (MET), as their view is that error and fraud is higher in smaller claims. The concept of a MET is not new; the SME scheme introduced in 2000 included a MET set at £25,000, which was later reduced to £10,000 before it was removed.

Next steps

The matters under consideration in this consultation are fundamental to the R&D tax relief regime. If implemented, the proposed changes could significantly impact the claims process.

We strongly encourage companies to contribute their views, either by submitting this form or sending your thoughts to one of our experts to incorporate into our consultation response. Responses must be made by 26 May 2025.