Posted: 01 / 04 / 2025

Article by: Ciarán Downs, R&D Tax Manager

An open consultation regarding ‘Advance Clearance’ for R&D tax claims has been announced in the March 2025 Budget, and will run for two months until 26th May 2025.

This demonstrates HMRC’s interest in reviving and reforming the existing, and barely used, ‘Advance Assurance’ option (available for first-time claimant companies with less than 50 employees). Of course, broader reforms to R&D tax claims have already been implemented in recent years, all intended to reduce much publicised fraud and error and get the incentives working as intended, to support companies investing in innovative projects in science and technology.

Why this matters more than it may seem

At first glance you’d be forgiven for thinking that this question of ‘pre-approval’ is a niche issue, but some of the ideas put forward in this consultation are fascinating and if implemented, could have significant impacts for R&D claimants and advisers. There appears to be a desire to give R&D claimant companies greater ‘certainty’ at various stages of the claims process (defined by HMRC as pre-activity, pre-claim, and pre-payment).

If implemented effectively, this could of course be welcomed by many businesses, enabling R&D tax incentives to operate more akin to grant funding than tax relief. There is however the question of whether HMRC could feasibly allocate the time and resources (in quality and quantity) to effectively manage advance clearance at speed and at scale, whilst minimising non-compliance and treating prospective claimants fairly.

A guaranteed compliance check?

Moreover, voluntarily applying for advance clearance would necessarily subject an R&D tax claim to a level of HMRC scrutiny at a probability of 100%. In comparison under the current system, only those claims selected for a compliance check (also known colloquially as ‘an enquiry’) post- submission are reviewed in detail by HMRC, amounting to 17% of claims in the 23/24 period.

The key will be in the detail as to how a new advance clearance scheme is operated, bearing in mind HMRC’s often time-consuming and inefficient approach to running and resolving compliance checks (although there have been signs of improvement recently.).

Mandatory clearance for some?

HMRC also raise the possibility of advance clearance becoming mandatory for certain companies, for example by size or by sector, certainly an interesting and potentially controversial move. Presumably advance clearance would then be voluntary for other claimants seeking more certainty in the outcome of their claim, as a trade-off for more upfront claim preparation work and guaranteed scrutiny.

A shift towards sector-based scrutiny

Requiring advance clearance in specific scenarios or what might be considered ‘high-risk’ sectors would have merit, although this may open the door to a ‘two tier’ system favouring certain taxpayers over others if we’re not careful.

Furthermore the ‘sector’ idea would enhance the importance of Standard Industrial Classification (SIC) codes, first introduced in 1948 and primarily used for statistical reporting, far beyond the original purpose. It’s worth noting that SIC codes are already being used by HMRC for R&D tax claim screening, as it is a required field on the mandatory ‘Additional Information Form’.

The return of a minimum expenditure threshold?

Somewhat surprising given the primary topic of the consultation, the idea of reviving a ‘minimum expenditure threshold’ for R&D claims is also raised by HMRC, something that historically was set at £25,000 per year and then later £10,000 before being removed altogether.

This would arguably be a straightforward way of reducing the number of claims made and more accurately targeting the R&D tax incentives. The premise would be that a certain minimum threshold level of expenditure is necessary to genuinely attempt to advance knowledge or capability within a field of science or technology.

Learn more about how the Spring Statement 2025 affects you

Download our guide to the Spring Statement 2025 here, where we break down the key announcements and what they could mean for you.

These updates play a critical role in shaping the financial landscape for businesses and individuals alike, with policy changes affecting tax, pensions, and government spending. Whether you’re a company director, an entrepreneur, or an individual looking to manage your wealth, our team is here to help you understand the implications of these measures and how to plan for the year ahead.