Hybrid fees

The letter sets each part separately. A fixed part is due whatever happens, often on signing or filing. A percentage part is due when the claim succeeds, applied to the benefit. Together they decide what you pay at any claim size.

The shared example's hybrid line is built from its other parts: a fixed element of half the illustrative fixed fee, $17,500, plus a percentage of half the illustrative rate, 10%. That gives $42,500 on a $250,000 claim. That sits between the $35,000 fixed fee and the $50,000 percentage fee. On a $100,000 claim the same hybrid is $27,500. Illustrative figures.

A hybrid can suit a business that wants a smaller cost up front than a fixed fee and a smaller exposure to a large claim than an uncapped percentage. It can suit an adviser and a business who both want some certainty and some shared reward. It can be the result of a negotiation that started from one of the simpler models.

The fixed part pays for the work whatever the outcome, so the adviser is paid whether the claim is large or small. The percentage part keeps an interest in the result. The business pays less up front than a fixed fee and less in a good year than an uncapped percentage.

Two parts are harder to compare than one. A hybrid can look cheaper than a fixed fee and turn out more expensive, or the reverse, depending on the claim. Put every proposal through the calculator on the same claim before you decide.

The fixed part is usually due whether or not the claim succeeds. The percentage part carries the same questions as any percentage: what it applies to, whether there is a cap, and what happens if the claim is reduced.

A hybrid can also be a way of describing a fee that is mostly one thing. A small fixed part with a large uncapped percentage is close to a success fee. A large fixed part with a token percentage is close to a fixed fee. Read the numbers, not the label.

The claim stays in your name. If it is reduced you usually repay the difference with interest and sometimes a penalty, whatever the fee structure.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.

Each part needs its own terms, as if it were the whole fee. For the fixed part: the amount, when it is due, and whether it is refunded if the claim is withdrawn or fails. For the percentage part: the base, the cap, and what happens if the claim is reduced. The letter should also say whether the fixed part is credited against the percentage part or added to it, because the difference is large.

Two hybrids look alike on paper. The first is $17,500 fixed plus 10% of the amount claimed, uncapped. The second is $17,500 fixed plus 10% of the amount received, with the percentage part capped at $30,000. On a $250,000 claim paid in full, both cost $42,500. If the claim is reduced to $150,000 on review, the first still costs $42,500 and the second costs $32,500. If the claim grows to $1,000,000, the first costs $117,500 and the second costs $47,500. Same headline, very different exposure. Illustrative figures.

What is each part, and when is each one due? What is the percentage applied to, and is it capped? What is the total on your expected claim, and on a claim half that size? What happens to each part if the claim is reduced or withdrawn?

• How are your fees calculated?
• What happens to the fee if the claim is reduced?
• Fixed fees and contingent success fees, the two parts
• All nine fee models on one claim
• Fee comparison calculator

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