What is Advanced Assurance?
If you run a tech company or are thinking of starting one you will most likely have heard of Research and Development tax credits (and if you haven’t you should check out our previous blog posts).
Until now these have been historic in nature, with companies having to apply after their year-end to make a claim. To try and provide security to SMEs over the likelihood of their work qualifying HMRC have released a new program called ‘Advanced Assurance’.
Why did HMRC create this option?
The measure is in response to a consultation on R&D which sought to improve accessibility to the relief for small companies (<50 employees and £2m turnover).
The aim is to remove uncertainty as to whether the R&D costs incurred will qualify for relief. Upon acceptance from HMRC, the clearance will apply for three years provided that there are no material changes to the nature of the project.
What do we think?
We think their heart is in the right place but the execution is too unclear at this point to be sure of the benefits. If you know your funding plans exactly along with your planned R&D for the next 24 to 36 months then this could be ideal.
However for high-growth technology firms we just do not see how this will be practical. Any ‘material’ changes to plans need to be submitted and discussed and as we know the majority of high-growth tech firms are in a constant cycle of pivots, funding changes and new innovations.
Providing regular reports and justifications on changing goalposts is likely to be far more cumbersome than just reviewing at year end what work was ‘qualifying activity’ and then claiming retrospectively for this.
Therefore as HMRC, understandably, are unable to answer key questions at this stage – such as how much reporting needs to be provided where there are material changes – a verdict on the efficacy of this scheme remains a long way off.
What should I do?
At ihorizon our mantra is that everything is personal and this is very true here. If you are at the beginning of your journey then having R&D Advanced Assurance in your arsenal for investor pitches is likely to be worthwhile. If however you are nearing your first year-end and have raised and spent funds then it is likely that simply applying for the past year is likely to be the best option.
If you have any questions please get in touch with us at firstname.lastname@example.org