Contingent vs fixed fees
A contingent fee costs less on a small claim and more on a large one; a fixed fee is the reverse. On the shared illustrative example they cross over at a $175,000 claim. Here is how to decide which side of that line you are on.
Assumptions used, the same for every model
- Claim sizes from $100,000 to $1,000,000; the highlighted column is the $250,000 claim used across the site.
- Contingent success fee: 20% of the amount claimed, no cap.
- Percentage of refund fee: 20% of the amount received, with 100% of the claim received.
- Fixed fee: $35,000 agreed up front, whatever the claim.
- Capped fee: 20% of the claim, never more than $60,000.
- Hourly fee: 120 hours at $250 an hour.
- Hybrid fee: $17,500 fixed plus 10% of the claim.
- Retainer plus success fee: A $17,500 retainer for the year, credited against 10% of the claim.
- Deferred fee: $35,000 paid when the benefit arrives, plus 10% for the wait.
- Software-assisted claim: A subscription of $6,000 a year, whatever the claim (illustrative; depends on the subscription price).
- The same work and scope for every model. No model is cheaper at every claim size. The software-assisted row is not a calculation: it depends on the subscription price, shown as an illustrative figure.
Illustrative figures. They are not quotes and not a recommendation of any fee model or adviser.
| Fee model | $100,000 | $250,000 | $500,000 | $750,000 | $1,000,000 |
|---|---|---|---|---|---|
| Contingent success fee20% of the amount claimed, no cap | $20,000 | $50,000 | $100,000 | $150,000 | $200,000 |
| Percentage of refund fee20% of the amount received, with 100% of the claim received | $20,000 | $50,000 | $100,000 | $150,000 | $200,000 |
| Fixed fee$35,000 agreed up front, whatever the claim | $35,000 | $35,000 | $35,000 | $35,000 | $35,000 |
| Capped fee20% of the claim, never more than $60,000 | $20,000 | $50,000 | $60,000 | $60,000 | $60,000 |
| Hourly fee120 hours at $250 an hour | $30,000 | $30,000 | $30,000 | $30,000 | $30,000 |
| Hybrid fee$17,500 fixed plus 10% of the claim | $27,500 | $42,500 | $67,500 | $92,500 | $117,500 |
| Retainer plus success feeA $17,500 retainer for the year, credited against 10% of the claim | $17,500 | $25,000 | $50,000 | $75,000 | $100,000 |
| Deferred fee$35,000 paid when the benefit arrives, plus 10% for the wait | $38,500 | $38,500 | $38,500 | $38,500 | $38,500 |
| Software-assisted claimA subscription of $6,000 a year, whatever the claim (illustrative; depends on the subscription price) | Depends on the subscription priceillustrative $6,000 a year | Depends on the subscription priceillustrative $6,000 a year | Depends on the subscription priceillustrative $6,000 a year | Depends on the subscription priceillustrative $6,000 a year | Depends on the subscription priceillustrative $6,000 a year |
Scroll sideways to see every claim size.
- Between $250,000 and $500,000 the lowest fee changes from the retainer plus success fee to the hourly fee.
The crossover
On the shared example, a 20% contingent fee and a $35,000 fixed fee cost the same at a $175,000 claim. Below that, the contingent fee is cheaper: on a $100,000 claim it is $20,000, against $35,000. Above it, the fixed fee is cheaper: on a $250,000 claim the contingent fee is $50,000, and on a $1,000,000 claim it is $200,000, against the same $35,000. Illustrative figures. The table above shows every claim size.
Your own crossover depends on the percentage and the fixed fee you are offered. Divide the fixed fee by the percentage to find it: $35,000 divided by 20% is $175,000. Illustrative figures. The calculator does this for you.
What each does well
A contingent fee needs no cash before the benefit arrives, and if the claim fails you pay nothing. It ties the fee to the result, so the adviser carries the cost of a claim that goes nowhere. For a first claim, a small claim or a business short of cash, those are real advantages.
A fixed fee can be worked out from the letter alone and does not rise with the claim. In a good year it does not become a larger bill, and it does not reward a bigger figure. For a large or predictable claim, those are real advantages too.
What each costs you in risk
With a contingent fee, the question is what happens when the claim changes. If the fee is a percentage of the amount claimed, you can owe the full fee on a claim that is later reduced. If there is no cap, a large claim means a large fee for what may be the same work.
With a fixed fee, the question is what happens when the claim is small or fails. The fee is usually due regardless, and on a small claim it can cost more than a percentage would. Extras outside the fixed price can push the total up.
Neither model changes who carries the tax risk. The claim is made in your name. If the tax authority reduces it, you usually repay the difference with interest and sometimes a penalty, whatever you paid the adviser.1Source 1The business repays a reduced claim, with interest and penalties where they apply: IRS, "Interest" and "Accuracy-related penalty" (United States); HMRC, "Tell HMRC if you've claimed too much R&D tax relief" (United Kingdom); Revenue, Tax and Duty Manual Part 29-02-06, "R&D tax credit: clawback of relief" (Ireland); Income Tax Act section 161(1) and CRA, "Avoiding penalties" (Canada); Department of Industry, Science and Resources, "Decisions we make about R&D Tax Incentive applications" (Australia); Inland Revenue, "Interest on overpayments and underpayments" and "Shortfall penalties" (New Zealand); IRAS, "Penalties for errors in tax returns" (Singapore). More detail on your country page. Help with a review is a separate question under either model.
Deciding
Estimate your claim honestly, including the chance that it is smaller than you hope. Put that figure, and half of it, through both proposals. Then ask the same questions of each: what is the fee based on, is there a cap or a limit on extras, what happens if the claim is reduced, and is review support included. The cheaper proposal on your expected claim may not be the cheaper one on your actual claim.
Rules on contingent fees for tax work differ between countries, and in some places they are restricted for certain kinds of work. The detail for your country, and a link to the rules themselves, is on the country pages.
Read next
- Contingent success fees and fixed fees
- Capped fees, a middle ground between the two
- What happens to the fee if the claim is reduced?
- Fee comparison calculator
Sources
- The business repays a reduced claim, with interest and penalties where they apply: IRS, "Interest" and "Accuracy-related penalty" (United States); HMRC, "Tell HMRC if you've claimed too much R&D tax relief" (United Kingdom); Revenue, Tax and Duty Manual Part 29-02-06, "R&D tax credit: clawback of relief" (Ireland); Income Tax Act section 161(1) and CRA, "Avoiding penalties" (Canada); Department of Industry, Science and Resources, "Decisions we make about R&D Tax Incentive applications" (Australia); Inland Revenue, "Interest on overpayments and underpayments" and "Shortfall penalties" (New Zealand); IRAS, "Penalties for errors in tax returns" (Singapore). More detail on your country page. Back
Examples use invented figures to show how each fee model works. Actual fees vary.
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