Retainer plus success fees

The letter sets the retainer, what it covers, and its term. It sets the success fee as a percentage of the benefit, with or without a cap. Some letters credit the retainer against the success fee, so the retainer is an advance. Others treat the two as separate, so you pay both in full.

That difference can add the whole retainer to the bill. Suppose a retainer adds up to half the illustrative fixed fee over a year, $17,500, and the success fee is 10% of the benefit. If the retainer is credited, you pay $25,000 on a $250,000 claim. If it is not, you pay $42,500. Illustrative figures built from the shared example.

This model can suit a business with R&D work going on all year that wants an adviser involved as the work happens, not only at year end. It can suit a business that files in several countries or has several projects, where the retainer buys ongoing attention. It can also suit an adviser who wants steady income rather than one payment a year.

Records are kept as the work happens, which can make a claim stronger and a review easier. The adviser knows the business. The success element keeps an interest in the outcome, and the retainer means the adviser is not paid only if the claim is large.

You can pay for the same work twice if the retainer is not credited against the success fee. You can also pay a retainer for months in which little happens. A retainer with a long minimum term and an exit fee can lock you in, and the red flag on exit fees explains why that matters.

The success part carries the usual percentage questions. The retainer part needs its own: what it covers, what is extra, and whether it continues if you decide not to claim in a given year.

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

The letter should describe the retainer as a list of services, not a label. It should say whether the retainer is credited against the success fee, whether it continues in a year without a claim, how it is reviewed, and how either side ends it. It should give the notice period and say whether an exit fee or a minimum term applies. The success part needs the same terms as any percentage: base, cap, and what happens if the claim is reduced.

A business pays a retainer that adds up to $17,500 a year and a 10% success fee on the amount claimed. In a year with a $250,000 claim and the retainer credited, the total is $25,000. In a year the business decides not to claim, the retainer is still $17,500 and buys only the ongoing advice. If the letter has a two-year minimum term, the business pays that second year whether or not it wants the service. Read the term before the fee. Illustrative figures.

Is the retainer credited against the success fee? What does the retainer cover, and for how long? What is the notice period, and is there an exit fee? What is the percentage applied to, and is there a cap? What happens if you do not claim this year?

• Are there minimum or exit fees?
• What happens if we end the engagement?
• Automatic renewal clauses, a red flag, and you can leave with your records, a green flag
• Hybrid fees, the related model
• 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