Advance clearance consultation – enquire first, pay later

The Spring Statement did not feature a lot of tax changes but amongst the detail was the publication of two consultations that many may have overlooked but could have important consequences for some taxpayers.

The first consultation focuses on research and development (R&D) tax reliefs, with the suggestion of a range of advance assurance options, intended to give claimants greater certainty of a claim being accepted, earlier in the process. So far, so good – to be successful at supporting innovation, the reliefs must be predictable, straightforward to access and provide sufficient certainty to genuine claimants while also reducing error and fraud, which in recent years has been unacceptably high. But how realistic is the aim of providing certainty in a process that is inherently uncertain?

The second consultation looks at introducing a new process to give major projects increased certainty in advance about the tax treatments that apply, in order to support investment decisions.

Voluntary ‘R&D advance assurances’ were introduced by HMRC several years ago for certain companies. Under the existing process, following the submission of information, applicants were invited to discuss their claim with HMRC and then, if successful, were given a degree of assurance that the claim would not be subject to enquiry for three years if the R&D undertaken was consistent with the initial information provided. A good idea in principle, but in practice uptake was incredibly low, with 80 applications received in 2023/24 out of approximately 11,500 eligible companies.

Regardless of the administration process, whether it is mandatory or voluntary, any advance assurance must provide just that – assurance. If the process does this, it will lead to increased confidence amongst businesses when making investment decisions (whether for large infrastructure projects, or a continued multi-year R&D programme). The common argument against the original advanced assurance programme was that it didn’t give sufficient assurance to warrant the investment of time, leading to a low take-up.

There will inevitably be a balance to be struck – the earlier the clearance can be applied for, the less certain the details of the project will be, consequently limiting how much assurance HMRC can give. The later the clearance, the greater the certainty.

Equally, common to both these proposed clearance mechanisms, will be projects such as these may change course midway, and so again, the risk is that advance assurance may not reflect how the project was eventually conducted.

There are some big decisions to be made as part of the consultation process, to ensure that the theory translates into a modern approach by HMRC to policing the tax system in a way that encourages investment, whilst continuing to deter and drive out fraudulent behaviour. But these consultations may provide a signal as to how HMRC intends to deploy its increased compliance resource in the future.