Take the fee test
Clause

Fee refund if the claim is reduced

The clause that says what happens to the fee you have already paid if the tax authority reduces the claim. Without it, nothing in the letter brings the fee down while you repay the difference.

This page explains a common clause in general terms. It is not legal advice, and contract law differs between countries. Ask a lawyer to review your own engagement letter.

Sample clause

Written for this guide, not from any real contract

1 If the Benefit is reduced by the tax authority after the Fee has been paid, 2 we will recalculate the Fee on the Benefit as finally agreed 3 and refund the difference within 30 days of the Client telling us of the reduction in writing. 4 This clause does not apply where the reduction results from information the Client did not disclose to us. 5 We are not liable for any tax, interest or penalty assessed on the Client.

  1. The trigger: a reduction after payment. Check that a reduction before payment is covered by the fee basis clause.
  2. The fee follows the result. Without this sentence, a fee calculated as filed stays as it was.
  3. A refund with a date. "At our discretion" or "as we consider appropriate" would be a different clause.
  4. The exception, in words you can test. A broad exception such as "unless the reduction is not our fault" would swallow the clause.
  5. Who pays the tax. The refund is of the fee only; the repayment, interest and any penalty stay with the business.

What it means in plain English

If the tax authority reduces a claim after it has been paid, the business repays the difference, with interest and penalties where they apply.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. The fee is a separate matter. If the letter says nothing, nothing in the letter brings a fee calculated on the claim as filed back down. This clause is where a letter can say otherwise.

The sample recalculates the fee on the amount finally agreed and refunds the difference within a set time. It then carves out one case: a reduction caused by information you did not give the adviser. And it repeats, as the review clause does, that the adviser is not paying any tax, interest or penalty.

What to look for

A version that is easy to live with says in both directions what happens: the fee is recalculated on the amount finally agreed, any excess is refunded, and the refund has a date. It names the exceptions in words you can test, such as information you did not disclose, rather than a general "unless the reduction is not our fault". It works alongside the review clause, so that the help with the review and the money are both covered.

A version to ask more about is missing altogether, so check for it first. Or it refunds only "at our discretion", or only where the adviser "accepts responsibility", or excludes every reduction "arising from the tax authority's interpretation", which could cover a great many reductions. A fee on the amount claimed with no refund clause is a fair model only if you chose it knowing that.

Contract law differs by country, and so does what a letter can and cannot do. Ask a lawyer to review your own letter before you sign it.

Questions to ask

Sources

  1. 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

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