WHAT IS ADVANCE ASSURANCE?
AA is sometimes known as an unsecured loan. What Advance Assurance (EA) is simply provisional confirmation by HMRC that an investment made into a business will be fully eligible for tax relief as long as certain conditions are met by the business and individual investors. Although businesses don't have a legal requirement to obtain AA as part of their eligibility to use specific tax relief schemes, it is an extremely useful tool to have in your bag of tricks in case you are hit with an audit. So what exactly are the different ways that you can obtain AA?
As you will know if you've been paying attention to the various stages of the tax year, there are two main ways that an investment can become eligible for advance assurance: through an option or an additional benefit. It is important to understand that any investment that is used as part of the alternative procedure cannot be taken out of this scheme. However, you may be able to take advantage of an AA on an asset that would otherwise be excluded in the tax year, for example if you were buying an asset for use as part of a business that became dormant throughout the year.
COMMON WAY TO TAKE OUT ADVANCE ASSURANCE
The most common way to take out advance assurance is through the option. This means that you are borrowing money against the equity in your home in order to invest in shares in a business that later grows and becomes profitable. In order to qualify for this relief, you need to provide HMRC with a written assurance that you intend to repay the loan within the prescribed period of time. This starts with your application form and goes on to state that you are not currently relying on any pension or other retirement income in order to raise money. You will also need to provide a detailed timetable of how much you are going to raise and how you intend to use the funds, along with documentation outlining your earnings and expenditure for each month.
If your intention is to take out a lump sum advance assurance, you will not be entitled to any income tax relief since this is not an investment in any way. Similarly, if you are looking to take out monthly payments, you will only be able to claim a limited amount of income tax relief since these will be investment costs. However, even if you are unable to claim any income tax, the value of the cover will reduce each year and can continue to do so until the life of the cover has been completed
HOW DO YOU FIND OUT WHETHER YOU MEET THE CRITERIA FOR CLAIMING ADVANCE ASSURANCE?
One of the first things to ask yourself is whether you have an investment or pension scheme that you are currently benefiting from. These usually depend on a number of factors including whether you are self-employed retired, work in an office, public sector employee or a member of the House of Commons. The amount of income you earn and the amount of pension you receive depend on several factors including: whether you are covered by an employer's scheme; whether you are covered by a pension scheme; and if you are covered by an NHS trust, are you a member of one. In addition to these, there are other criteria that can affect your eligibility for these benefits.
For those who are not covered by any tax schemes or pension schemes, this is a great way to build your wealth without having to pay any capital gains tax. It is important to understand however that only those investors who have an ongoing source of income that actually comes from investments will be able to benefit from the income tax relief. At the start of the scheme, you must make contributions that will go towards paying tax on the income you are receiving each year. The value of the cover then grows tax-free and the more you take out the more money you will receive each year.
The amount of time you spend getting an advance assurance are going to depend on how much money you are looking to put aside as a lump sum. You may choose to apply online for your cover, or you may choose to take the traditional route and visit a broker personally. By filling in the application form you will need to provide information about any additional supporting documents required such as income details, bank statements and wages slips. This is then verified by the financial firm which you have chosen. The application form should be submitted along with relevant information so that it is completed accurately and fully.
The application can take anywhere up to four weeks to receive a response so if you are not getting a response within a week, then it is very important that you try again. If you do decide to go ahead with a lump sum investment, make sure you use a reputable broker as they will not give away the cash unless you are a registered business promoter with them. A reputable broker will then be able to get in touch with potential investors for the savings that can be realized through investment.
CONCLUSION
There is a fine line regarding this since you will not want to risk any of the cash that is collected through investment. If you were using an investment product to run your business, then this could be classed as a business promoter even though you are not receiving any profit from the sale.
