Myth

No win, no fee means no risk

No win no fee means you pay nothing if the claim fails. It does not mean you carry no risk. The claim is in your name, and a reduced claim is repaid by you.

The myth

If the adviser is only paid when the claim succeeds, the business has nothing to lose. The adviser carries the risk, so there is no downside to filing the biggest claim the adviser will put forward.

What actually happens

No win no fee describes the fee. It does not describe the claim. The claim is filed in your name, you sign it, and you are the one the tax authority deals with if it has questions.

If the tax authority reviews the claim and reduces it, the benefit is repaid by you, usually with interest and sometimes with a penalty.1 Whether the adviser's fee comes down too depends on the engagement letter. If the fee was a percentage of the amount claimed, you may owe the full fee on a claim that is later cut.

There is also the cost of the review itself: your time, your records, and sometimes a fee for the adviser's help, if help is not included. A claim that fails costs you nothing in adviser fees. A claim that succeeds and is later reduced can cost you a great deal.

None of this makes a contingent fee a bad arrangement. It needs no money up front, and it ties the fee to the outcome. The contingent success fees page sets out what it does well. The point is narrower: the fee arrangement shifts the fee risk, not the tax risk.

Where the belief comes from

The phrase comes from other kinds of claim, where the person bringing the claim has little to lose if it fails. A tax claim is different in one way that matters: it is not a claim against someone else. It is a statement about your own affairs, made to the tax authority, and a tax authority can review a claim after it has been paid, within time limits set by law. See the page for your country for the limit that applies.2 The money arrives, the fee is paid, and the risk stays with the business for as long as the tax authority can look again.

A worked example

On the shared example, a business files a $250,000 claim on a 20% fee of the amount claimed and receives the benefit. The fee of $50,000 is paid. Two years later the tax authority reviews the claim and allows $200,000. The business repays $50,000 with interest where it applies. The fee does not change, because the letter tied it to the amount claimed, and the letter said nothing about review support, so the business pays for help by the hour. The arrangement was no win no fee. The business carried the whole of the risk once the claim was paid. Illustrative figures.

With two different sentences in the letter, a fee on the amount received and review support included, the same review would have cost the business $10,000 less in fees and nothing for help. The model did not change. The letter did. Illustrative figures.

What to do instead

Ask three questions before you sign. What is the fee a percentage of, the amount claimed or the amount received? If the claim is reduced after filing, does the fee come down, and is any part refunded? Is help with a tax authority review included, and what does it cover?

Then ask to see the whole claim before it is filed, and ask the people who did the technical work to read it. A claim you understand and stand behind is the best protection, whatever the fee model. The five-minute fee test on the homepage runs through the same checks.

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
A tax authority can review a claim after it has been paid, within time limits set by law: Internal Revenue Code section 6501 (United States); Finance Act 1998 Schedule 18 paragraphs 24 and 46, via HMRC Enquiry Manual EM1510 and Compliance Handbook CH51300 (United Kingdom); Taxes Consolidation Act 1997 section 959AA, via Revenue Notes for Guidance Part 41A (Ireland); Income Tax Act section 152(3.1) and (4) (Canada); Income Tax Assessment Act 1936 section 170, Income Tax Assessment Act 1997 section 355-705 and the ATO, Request an amendment to a business or super tax return (Australia); Tax Administration Act 1994 section 108, via Inland Revenue SPS 20/03 (New Zealand); Income Tax Act 1947 section 74 (Singapore). More detail on your country page. Back

Rules and common practice differ between countries. See the page for your country.

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.