Fee types

Deferred fees

A deferred fee is agreed now and paid later, usually when the benefit arrives. It eases cash flow without tying the fee to the size of the claim, but it is still due if the claim fails.

A deferred fee is a fee agreed now and paid later. The amount is usually fixed, or set by hours, but payment waits until the benefit arrives or until an agreed date. It is often confused with a success fee because, in both, you pay when the money comes in. The difference is that a deferred fee is due whether or not the claim succeeds.

Worked example: deferred fee

Illustrative

$38,500on a $250,000 claim

The fee at each claim size
Claim	$100,000	$250,000	$500,000	$750,000	$1,000,000
Deferred fee	$38,500	$38,500	$38,500	$38,500	$38,500

Scroll sideways to see every claim size.

Assumptions used

Claim of $250,000, the same claim every fee type page uses.
$35,000 paid when the benefit arrives, plus 10% for the wait.
The same work and scope for every model.

Illustrative figures. Same claim and assumptions for every fee model on this site.

How it works

The letter sets the fee and a payment date or trigger, such as receipt of the refund, the end of the tax year, or a fixed number of months after filing. Some letters add interest or an uplift for the wait. Some make the fee payable on the trigger date even if the claim has not paid out by then.

On the shared example, a deferred fee of the illustrative fixed fee, $35,000, is the same $35,000 whenever it is paid and whatever the claim turns out to be. If the letter adds an uplift for deferral, say a tenth, the fee becomes $38,500. Illustrative figures.

Who it can suit

A deferred fee can suit a business that is confident its claim will succeed but cannot spare the cash until it does. It keeps the predictability of a fixed fee while easing the timing. It can also suit a business that would rather not have the fee tied to the size of the claim at all.

What it does well

The fee does not rise with the claim. You know the figure before you start, and you pay it from the benefit rather than from working capital.

Risks for the business

The fee is due even if the claim fails, is withdrawn or is reduced. If the trigger is a date rather than a receipt, you may have to pay before any benefit arrives. An uplift for deferral is a cost of credit, and it is worth comparing with the cost of simply borrowing the money.

Read what happens if the refund is delayed by a review. A long review can push the payment date out, or, if the trigger is a date, leave you paying the fee while the claim is still being questioned.

A deferred fee does not change who carries the tax risk. The claim is in your name, and if it is reduced you usually repay the difference with interest and sometimes a penalty.1

What the engagement letter should say

The letter should state the fee, the trigger for payment and what happens if the trigger never arrives. If the trigger is receipt of the benefit and the claim fails, is the fee still due, and when? If there is an uplift for deferral, the letter should give it as a figure, not a formula, and say whether it keeps growing while a review runs. It should also say whether the adviser can demand payment early if the business changes adviser.

An example in practice

A business agrees a $35,000 fee deferred until the refund arrives, with a tenth added for the wait. The claim is filed and the refund is expected within months. Instead the tax authority opens a review that lasts a year. The refund eventually arrives in full, and the business pays $38,500. Had the letter set a fixed payment date six months after filing, the business would have paid during the review, before knowing whether the claim would survive. The trigger matters more than the fee. Illustrative figures.

What to ask

Is the fee due if the claim fails or is reduced? What is the trigger for payment, a receipt or a date? Is there an uplift or interest for the wait, and how much? What happens if the refund is delayed by a review?

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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