Tax Guides

What is Advance Assurance?

What is Advance Assurance

What is Advance Assurance?

September 1, 2020

Advance Assurance (AA) is provisional confirmation from HMRC that the investment made into a company will be eligible for tax relief so long as all stipulations are met by both the company and investors. Although companies do not have a mandatory obligation to obtain AA in order to be eligible to use tax relief schemes, it can be an incredibly useful tool for attracting investors as it provides reassurance that they’ll receive added tax benefits by investing in the company.

What Tax Schemes use Advance Assurance?


AA can be applied for to most tax relief schemes that have been designed to incentivise investment into UK companies. Some of the most popular schemes which AA can be used for include:

Who can apply for Advance Assurance?


Any company can apply for AA, but to be successful, it is crucial that the company meets all of the eligibility criteria specified by the relevant tax relief scheme the company intends to use. Within the company, four people can apply for AA:

  • A company director
  • The company secretary
  • A trustee if the entity is a charitable trust
  • An agent acting on behalf of the company (to do this, the agent must enclose a signed copy of the company’s authorisation)

How to apply for Advance Assurance


Before applying for AA for any scheme, it is hugely important that you check the specific eligibility criteria for the scheme you are intending to use. There are usually significant and strict requirements that must be adhered to, and any non-compliance can result in your AA being denied or revoked should you fall out of scope after it has been issued.

Once you are sure your company is eligible, you will need to prepare several documents to support your AA application:

  • An amount of how much funding you hope to raise
  • The business plan and financial forecasts
  • A copy of the latest accounts (you may not have this if your company is newly incorporated)
  • Detail of which companies will be using the investments (if your company has subsidiaries or is part of a group)
  • A list of amounts, dates and venture capital schemes which you have previously received funding and investment from
  • The latest copy of the company’s memorandum and articles of association, to include any changes you expect to make if applicable
  • A copy of the register of members from the date you apply for AA
  • A copy of your pitch deck or documents you used as your proposal to investors
  • Details of any other agreements between the company and shareholders or VCT
  • A signed letter from one of the directors of the company if you are using an agent to act on your behalf
  • A completed checklist that is submitted alongside your AA application where you are applying for SEIS, EIS, SITR or VCT.
  • Any other supporting documents that will help show how you meet the qualifying conditions for the schemes

Advance Assurance for SEIS, EIS or VCT

In addition to the documentation listed above, further information is still required. You will need to provide an explanation of how the company will meet the “risk to capital” condition and include details of potential investors (names and addresses).

For only EIS and VCT, you will also need to explain how the money will be used for the growth and development of the company.

Once all documentation and information has been collated, you should prepare a cover letter to summarise your application. There is no fixed template of what to include on the cover letter, but you should aim to provide key information as clearly as possible for the HMRC reviewer. We would recommend including:

  • A summary of the company
  • Any details of upcoming or existing funding rounds
  • Investor details
  • A financial summary

Once all this is ready, you can then complete the AA application form.

Advance Assurance for SITR

If you are seeking to obtain AA for a SITR, there is no specific application form to complete. Instead you will need to get in touch with HMRC directly, either by email or post. You should still provide as much of the documentation listed above as applicable, as well as the following information:

  • the certificate of incorporation of your company or charity
  • the memorandum and articles of association of your company or the equivalent governing documents of your charity, such as a trust deed
  • a summary describing the investment and how it will be used
  • a copy of any loan agreement you’re using
  • any other supporting documents

Advance Assurance for R&D Tax Credits

AA for R&D Tax Credits works slightly differently to the other tax relief schemes. Instead of confirming that a company is eligible to receive investments that can qualify for tax relief, it goes further by pre-approving R&D tax credit claims made in the first three accounting periods. This means that if AA is issued, HMRC will not investigate into the first three claims made.

To apply you’ll need to provide information specific for R&D tax credit AA:

  • your company accounts
  • your company registration documents from Companies House
  • previous company tax return
  • the name and contact details of a person with direct knowledge of the R&D work who will be able to discuss the application with HMRC

You have two options when it comes to applying for AA for R&D Tax Credits. You can complete the application form online which will require a Government Gateway ID and password (you can set one up on the Government website easily) or you can complete the form online, print out and post to HMRC.

Where to send Advance Assurance application


Once you have put together everything needed for your application, there are two ways you can send it off to HMRC.


  1. You can either email it to: [email protected]
  2. Or you can post the application to:
    Venture Capital Reliefs Team
    HM Revenue and Customs
    BX9 1BN

For R&D Tax credits:

  1. You can email it to: [email protected]
  2. Or you can post the application to:
    HMRC R&D Unit
    PO BO Box 3900
    Glasgow G70 6AA

How long does the application process take?


As you may be able to see by now, the most time-consuming aspect of the AA application is putting together all the required information. Once this has all been completed and sent off, it can take HMRC between 2 to 6 weeks to respond, depending on variables such as how complex the application is, how complete and clear the information that has been provided is, and how busy HMRC are at the time.

Should you need to follow up on your application you can either use the same email or leave a message on HMRC’s telephone answer machine on 0300 123 1083 (they will only call back where they decide a response is needed).

What happens after my application?


HMRC will generally contact you once they have made a decision. If your application is successful you will receive a statement which you can show as evidence to your investors. If your application is unsuccessful then HMRC will provide feedback and reasons as to why they don’t believe your application meets all the necessary requirements and conditions. However, HMRC will not respond at all where your application was incomplete (more reason to double check you have provided all necessary information and documents outlined above) or if it was not considered at all in the first place.

Why was my application not considered?


There are certain industries or trades which are not eligible to use venture capital schemes at all (EIS, SEIS, SITR and VCT). Some common examples include those dealing in land or those involved in banking, insurance, legal and accountancy services. A full list of excluded activities has been outlined by HMRC. However, it is worth noting that companies are only excluded from raising investments under these schemes where a ‘substantial element’ (20% of more) of their trade consists of the excluded activity. Therefore, if the majority of the business is performing other trade activities which are not excluded, they may still be eligible to use the schemes and potentially receive AA.

Similarly, there are certain industries and activities which are not eligible to use R&D Tax Credits. These include businesses in the social sciences such as psychological studies or surveys. Although the reports may inform future R&D eligible projects, the activity itself of carrying out research does not qualify. Other activities which do not qualify include marketing and the improvement of business processes where it is solely for the purpose of optimising people or cost management and does not involve technological advancement and innovation.

HMRC can refuse to issue AA where they are not convinced that the company meets all the required conditions. They are also able to refuse to give an opinion or reasons behind rejecting an application in the following situations:

  • The information provided does not enable HMRC to come to a conclusion on whether a company would be eligible to receive investment
  • It appears that shares may be issued for the purpose of tax avoidance
  • HMRC deems the investment to be the result of aggressive tax planning that pushes the boundaries of the law
  • Where HMRC considers that the terms of investment would mitigate financial risk to the investors
  • If any of proposed investment exploits loopholes in the law and goes against the intention of the schemes
  • Where the ‘risk to capital’ or ‘disqualifying arrangement’ conditions are not met

Where HMRC refuses to grant AA, this does not automatically disqualify a company from being eligible to utilise one of the schemes. Where a company does not meet the eligibility criteria but makes substantial changes to rectify this then a future application for AA can be made.

Does Advance Assurance expire?


If you receive AA, it will be valid indefinitely and will not expire after a particular time frame. However, AA can become invalidated at any point where there is any change to the business that means it no longer complies with all of the eligibility criteria. Such changes can be as small or simple as growing the team to over the limits, trading for longer than the specified time threshold or earning profits in excess of the allowable amount.

Another factor that can impact the validity of your AA is your investors. An application for AA only checks that the company is eligible for a specific tax scheme, but it does not provide any assurance that the investor is entitled to receive tax benefits as they have their own conditions they must meet.

Some tax schemes will impose time constraints as part of the eligibility criteria. For example, SEIS stipulates that a company will only be eligible where they have been trading for under 2 years. Similarly, to be eligible to receive the benefits from EIS, a company must obtain funding within the first 7 years from trading (or 10 years if it is considered a Knowledge Intensive Company). Therefore, even where AA has been obtained, should a company be unable to meet set timing conditions, the AA automatically becomes invalid.

Successfully obtaining AA can be challenging and requires meticulous preparations. Interpreting HMRC’s guidelines and determining eligibility can also be difficult. If you need support getting set up under one of the above schemes, then do get in touch and we’d be happy to arrange a consultation call with our Innovation Funding Expert.


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