R&D Tax Relief Advance Clearances Consultation: ResearchQX Response
HMRC has recently conducted a consultation on proposed changes to the UK R&D Tax Relief system, specifically around a revised system of clearances. The consultation sought input on how to update the current, underused advance assurance scheme, which is currently only available to first-time claimants with 50 employees or fewer.
HMRC now aims to broaden the availability of advance clearances to a wider range of companies claiming R&D Tax Credits, with the goal of:
- reducing error and fraud in R&D claims,
- increasing certainty for claimants, and
- improving overall customer experience.
The government is also keen to ensure any new system delivers value for money, especially given the current resource constraints.
At ResearchQX, we engaged with our clients and gathered their feedback before submitting our response to this important consultation.
Too Much, Too Soon?
This proposal is just one of several recent and planned changes to the UK R&D Tax Relief landscape. The pace of change is already challenging for many companies trying to access R&D Tax Credits, and there is a real risk that an overly complex and fast-evolving system will erode confidence in R&D tax incentives.
It may have been more prudent to allow the most recent reforms, including the significant move to a merged R&D Tax Relief regime, time to bed in before introducing further adjustments. In our view, businesses need certainty to invest and innovate. Additional layers of complexity and uncertainty in the R&D Tax Relief process could ultimately undermine the very aims HMRC is trying to achieve.
Nonetheless, as HMRC actively sought views from across the R&D Tax Relief community, we felt it was important to contribute our perspective.
Focus Areas of the Consultation
HMRC specifically sought feedback from R&D Tax Credit claimants and stakeholders on:
- The type of assurance that should be offered, whether voluntary or mandatory, and which companies should be eligible under each approach.
- The timing of the assurance - whether it should be provided before the R&D activity begins, before an R&D Tax Relief claim is submitted, or after submission but before payment.
- Minimum Expenditure Threshold (MET) - whether a threshold should be reintroduced below which R&D Tax Credit claims would not be accepted. The original SME scheme had a £25,000 MET, and HMRC sought views on whether significant R&D can occur below such a level.
Voluntary or Mandatory Assurances?
HMRC suggested that voluntary assurances should focus on high-growth and high-potential companies, particularly in the eight key growth sectors identified in the Invest 2035: UK’s Modern Industrial Strategy Green Paper.
We broadly support this approach, but caution against using narrow sector classifications. R&D activity is not always confined to traditional "growth sectors." For instance, large UK retailers are investing heavily in e-commerce technology and digital innovation, areas that clearly contribute to the UK’s technology leadership but may be excluded under a rigid sector-based approach.
We recommend that eligibility for voluntary assurance also considers the field of technology and the nature of the innovation, rather than solely relying on industry sector classifications. This would ensure that genuinely innovative R&D work is not inadvertently excluded.
The introduction of mandatory clearances represents a much more significant change. Any sector-based criteria must be carefully designed to avoid unintended consequences. Mandatory assurances will also need to be properly resourced by HMRC. Our clients have experienced, and we have seen widely reported, delays in the current compliance process. Similar delays within a mandatory clearance system would risk discouraging legitimate claimants from applying for R&D Tax Credits at all.
Proper training for HMRC staff carrying out clearance checks will be critical to avoid mandatory clearances becoming a serious bottleneck in the system.
When Should Assurance Be Provided?
While pre-activity assurance might offer some upfront certainty, the nature of R&D means that uncertainties often emerge during the project. This can lead to significant changes in the scope and nature of the work, making a pre-activity assurance inconsistent with the final claim.
We believe that pre-claim assurances would be far more practical and effective, by this stage, the R&D work has largely been completed and the key details are clear.
Initially, we questioned the value of post-claim, pre-payment clearances. However, our clients noted the benefit of not having to repay R&D Tax Credits that had already been received. On balance, we believe post-claim clearances could play a useful role in the process.
Minimum Expenditure Threshold (MET)
We support reintroducing a Minimum Expenditure Threshold for R&D Tax Credit claims. Very small claims appear to contribute disproportionately to fraud and error in the system. A sensible MET would help HMRC focus resources where they are most needed and reduce administrative burdens, benefiting both claimants and HMRC.
Next Steps
This consultation forms stage one of the UK government’s five-step process for developing tax policy. HMRC will now consider the feedback and develop a more detailed proposal, which will be subject to further consultation.
At ResearchQX, we look forward to reviewing and responding to the next stage of proposals later this year.
We will continue to keep our clients and the wider business community informed as the UK R&D Tax Relief system evolves.
If you would like advice on how these proposed changes may affect your company’s R&D Tax Credit claims, please get in touch with us at ResearchQX. Our expert team is here to help you navigate the complex and changing UK R&D Tax Relief landscape.
