HMRC is proposing to run a pilot of an Advance Assurance programme for SMEs wishing to claim R&D relief.  The idea in summary is that the smaller SMEs (no more than 50 employees) who are considering making their first R&D claim will be able to contact the relevant specialist R&D unit [contact details here] for advice.  HMRC will then work with the company to reach a point where they are happy that the company understands the R&D regime and the definition of R&D sufficiently for HMRC to be comfortable that the claims will be “right”.  An ‘Assurance Letter’ will be issued which will, subject to conditions, assure the company that its claims for the agreed period will not be reviewed in detail.  Such Assurance Letters are likely to cover the first claim and then the following two claims.
I should stress at this point that HMRC are still working on the details of the Pilot, particularly the nature of the ‘conditions’ to be attached to the Assurance Letter.
Each company entering the Pilot will be assigned a Dedicated Assurance Contact at the specialist R&D unit who will be their primary contact throughout the exercise.  That person will then arrange for R&D Inspectors to meet* with the company to discuss the company’s business and the R&D regime.  HMRC will be looking to gain confidence that (amongst other things):
  • the company has an adequate understanding of the R&D regime
  • the company’s ‘competent professionals’ have an adequate understanding of the definition of R&D for tax purposes and how to identify qualifying R&D
  • the company’s professionals have an adequate understanding of how to identify the start and end points for qualifying R&D
  • the company’s record keeping in relation to the information needed for an R&D claim is adequate.
Once it has gained that confidence, it will issue the Assurance Letter, which will reassure the company that its claims will not be enquired into during the assurance period.  As mentioned above, the Assurance Letter will be subject to conditions.
All of which sounds perfectly reasonable, and it is reasonable in principle but I do have some concerns.
All of my experience leads me to question whether this process is going to be the best way to identify the qualifying R&D activity. When I am looking at potential R&D claims with my clients, I work closely with the client’s competent professionals to identify activity that satisfies the definition.  It is more than simply ensuring that my client understands the definition.  It is an iterative process of explaining the meaning of R&D for tax purposes, understanding what the company does and relating that back to the definition.
Will the R&D Inspectors go out of their way to work with the company to identify qualifying R&D activities within the company? 
It may not surprise you to know that there are often differences of interpretation between HMRC and taxpayers/advisers regarding the legislation.  Will this approach simply ensure that HMRC’s view prevails?
Of course, all of this has to be balanced against the fact that these are small companies who may well feel that they cannot afford professional advice.  If this Pilot helps them to benefit from this relief then that must be seen as a good result.

*Note: The Cardiff R&D Unit is unusual in that it is responsible for companies in Wales, Scotland and Northern Ireland.  Companies dealt with by this unit are, therefore, likely to find that the unit does not have the resource to offer face to face meetings.  Discussions are likely to take place over the phone.