Jumpstart, a consultancy which advises SMEs on applications for the R&D tax credit scheme, says the new advanced assurance initiative, announced in the Autumn Statement on 25 November, is not the ‘light touch’ route that many in the sector expected.

Advanced assurance is open to companies with less than £2m turnover and fewer than 50 employees. If a company qualifies, the first three years of claims would be allowed without further enquiries.

Richard Edwards, director at Jumpstart, said: ‘While we welcome any attempts to make the R&D tax credit application process easier, the details required from SMEs under advanced assurance remain potentially complex and time-costly.’

Edwards says the advanced assurance requires applicants to submit a detailed overview of the proposed R&D activity the company plans to undertake; the scientific or technological advance being sought; the scientific or technological uncertainties involved; the plan for dealing with those uncertainties; the reasons why the knowledge being sought is not readily deducible by a competent professional; and a breakdown of the R&D costs.

‘SMEs are time-poor and, although they may be clear on what they consider to be R&D, they typically are not familiar with HMRC’s definition, or the 500 pages of guidance HMRC has produced. A few help buttons on an online form is no substitute for detailed guidance,’ he added.

‘Under advance assurance, HMRC is requiring companies to have a good understanding of its jargon before they engage with them. It would have been more helpful to move this assistance even closer to SME’s by allowing them to call in to discuss what the highly generic guidance means in practice.’

Patent Box plans

There are also concerns over the outcome of a recent consultation on proposed changes to the Patent Box regime to bring it in line with the new international framework for preferential intellectual property (IP) regimes developed under the OECD’s Base Erosion and Profit Shifting (BEPS) project. The consultation closed on 4 December.

The main proposed change is the introduction of the ‘nexus fraction’, meaning companies would only be eligible to claim Patent Box treatment on the portion of income resulting from R&D carried out exclusively by them to develop qualifying IP.

But in its response to the consultation, RSM has raised concerns that companies would now be ‘penalised’ if they sub-contract that work to a related company, even if that company is based in the UK or is the most appropriate sub-contractor to carry out the R&D work.

George Bull, RSM’s senior tax partner, said: ‘We are concerned that these latest proposals for changes to the Patent Box regime will have wider implications for smaller, innovative businesses in the UK – the very same businesses that the Chancellor wanted to incentivise by making the UK the ‘most competitive tax environment in the G20’.

‘Effectively penalising businesses wanting to use related sub-contractors for legitimate commercial reasons will restrict their development activities and also create a more onerous administration system, meaning that UK companies – and in particular high-tech businesses and developers - will suffer additional costs just so that the Patent Box regime can meet the OECD’s proposals.’

The consultation on Patent Box: substantial activities, is now closed. Details are here

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