Fee types

Hourly fees

An hourly fee pays the adviser for time spent, whatever the claim is worth. It rewards efficient work and does not rise with the claim, but the total is uncertain until the work is done.

An hourly fee pays the adviser for the time the work takes. The size of the claim makes no difference. A simple claim takes fewer hours and costs less; a complicated one takes more and costs more. It is a familiar model across professional services, and the one with the least connection between the fee and the benefit.

Worked example: hourly fee

Illustrative

$30,000on a $250,000 claim

The fee at each claim size
Claim	$100,000	$250,000	$500,000	$750,000	$1,000,000
Hourly fee	$30,000	$30,000	$30,000	$30,000	$30,000

Scroll sideways to see every claim size.

Assumptions used

Claim of $250,000, the same claim every fee type page uses.
120 hours at $250 an hour.
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 engagement letter sets an hourly rate, or several rates for different people, and usually gives an estimate of the hours. You are billed for the time recorded, often monthly or at agreed stages. Some letters set a budget that the adviser must not exceed without your agreement. Others leave the total open.

On the shared example, 120 hours at $250 an hour is $30,000. That is less than the illustrative fixed fee of $35,000 and less than a 20% fee on a $250,000 claim. It would be the same $30,000 on a $1,000,000 claim, if the work took the same time. Illustrative figures.

Who it can suit

An hourly fee can suit a business whose claim is straightforward, well documented and similar each year, so the hours are predictable. It can suit a business that wants to pay for exactly the work done, and that is happy to manage the adviser's time. It can also suit a one-off piece of work, such as a second opinion on a claim prepared by someone else.

What it does well

The fee has no link to the size of the claim, so there is no pull towards a larger figure and no windfall for the adviser in a good year. Efficient work is rewarded. You can see where the time went, and you can stop at any point.

Risks for the business

The total is uncertain until the work is finished. Without a budget or a cap on hours, a claim that turns out complicated can cost far more than the estimate. Time spent dealing with questions from the tax authority may be charged at the same rate, so a review can add to the bill.

The fee is due whether or not the claim succeeds, and whatever it turns out to be worth. On a small claim, the hours may cost more than the benefit. On a claim that the adviser decides is not worth filing, you still pay for the time.

Hourly billing also rewards time, not results. An adviser is paid the same for a careful claim and a careless one. That is not a reason to assume anything is wrong. It is a reason to ask who will do the work and how it will be checked.

The claim is in your name. If it is reduced you usually repay the difference with interest and sometimes a penalty, however the adviser was paid.1

What the engagement letter should say

The letter should give the rates for each person who may work on the claim, an estimate, and a budget beyond which the adviser must ask before continuing. It should say how time is recorded and billed, whether travel and waiting time count, and whether help with a review is charged at the same rate. It should say what happens if the adviser decides partway through that the claim is not worth filing: whether you pay for the hours to date, and whether you keep the work.

An example in practice

A business is quoted 120 hours at $250 an hour, $30,000, for a $250,000 claim. Halfway through, the adviser finds that records for the largest project are thin and that reconstructing them will take another 60 hours. Without a budget clause, the bill rises to $45,000 and the business finds out when the invoice arrives. With a budget clause, the adviser stops at $30,000 and asks. The business can then decide whether the extra hours are worth it, or whether to leave that project out of the claim. Illustrative figures.

What to ask

What is the estimate, and what is the most it could be? Will you be told before the estimate is exceeded? Who will do the work, and at what rate? Is time spent on a tax authority review charged? How is time recorded, and will you see it?

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.

KnowYourFees.org is published by Swanson Reed, an R&D tax advisory firm that competes with other advisers. This site does not recommend any adviser, including Swanson Reed.