Improvements needed if advance assurance is to help businesses and reduce error and fraud
An improved pre-approval system for research and development tax reliefs could help deliver certainty to businesses, says the Association of Taxation Technicians (ATT), as the Government looks to reduce fraud and error in the system.
The Association says its members have concerns over the current advance assurance regime, which allows businesses to send HMRC details of their R&D work ahead of claiming tax relief, to confirm it meets criteria. This includes time and cost pressures, and significant uncertainty around key aspects of the R&D tax relief regime.
HMRC estimates1 that around 18% of claims for R&D relief were the result of error and fraud in 2021-22, totally £1.3 billion, and recently ran a consultation2 on the clearances scheme to address these problems.
Responding,3 ATT called for greater resourcing to help HMRC effectively pre-assess claims, including in investment in training and expertise of staff.
ATT President Senga Prior said:
“There continues to be significant uncertainty around key aspects of the R&D tax relief regime — particularly in determining whether an activity qualifies as R&D and who is entitled to claim for contracted out activities. The provision of advance assurance on these areas could help support genuine innovation and investment.
“The current advance assurance regime is not widely used for a number of reasons. In particular, many claimants and advisers feel the time and cost of seeking advance assurance outweighs the benefits.
“Advance assurance could be made more attractive by allocating additional resources and improving flexibility. Consideration should also be given to the skills and expertise of those who administer assurances, especially if HMRC wishes to charge taxpayers.”
The Association opposes restricting the assurance regime to certain industries or a minimum amount of expenditure, and also warns against making it mandatory for some claimants, saying this would create a “two-tier system”.
Senga Prior added:
“Advance assurance should be available to any business seeking reassurance, and for any amount of expenditure. Whether or not an activity is R&D depends on the nature and purpose of the work undertaken, not the amount spent on it. Perfectly good R&D work can, and indeed is, undertaken for relatively small amounts of money.
“Given the level of fraud within the R&D tax relief regime, we can see the argument for mandatory clearances in high risk sectors. However, doing so risks creating a two-tier system and ensuring the right companies are brought into any mandatory scheme could be challenging in practice.
“Instead of introducing additional compliance burdens for claimants, we believe the government should take a wider look at how to reduce error and fraud.”
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