What happens to the fee if the claim is reduced?

A claim can be reviewed after it has been paid, and reduced.1Source 1A 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. When that happens, the repayment, the interest where it applies and any penalty usually fall on the business whose name is on the claim.2Source 2The 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). Rules under which a preparer or agent can be penalised alongside the business: IRS, "Tax preparer penalties" (United States); HMRC, Compliance Handbook CH81166 (United Kingdom); Revenue, Notes for Guidance, TCA 1997 Part 47, section 1055 (Ireland); Income Tax Act section 162(5.1) to (5.3) and CRA, IC01-1R2 "Third-party civil penalties" (Canada); Tax Agent Services Act 2009, sections 30-10 and 30-15 (Australia); Inland Revenue, "Shortfall penalties" (New Zealand); Income Tax Act 1947 section 95 (Singapore). More detail on your country page. The fee is a separate matter, settled by the engagement letter. Some letters recalculate the fee on the reduced amount. Some refund part of it. Some say nothing, which means the fee stays as it was.

The size of the difference is easy to see on the shared example. A 20% fee on a $250,000 claim is $50,000. If the claim is reduced by $50,000, a fee that follows the result falls by $10,000; a fee that does not stays at $50,000, on a claim that has just cost you $50,000 in repayment. Illustrative figures.

The adviser health check asks you: "If the claim is reduced on review, does the fee come down too?"

A clause that says what happens, in both directions: whether the fee is recalculated, whether any part is refunded and when, and whether the adviser's help with the review is included or charged. An adviser who says "the fee follows the amount you receive, so it comes down" has answered. So has one who says "the fee is for the work and does not change, and here is why". What matters is that you know.

Silence in the letter. A fee due in full on filing, with no adjustment. An answer that a reduction has never happened. A review clause that covers help but says nothing about the fee.

• The clause: fee refund if the claim is reduced
• The script: asking for a fee cap
• Red flag: uncapped success fees. Green flag: a fee you can work out yourself
• Myth: no win no fee means no risk. Adviser health check

Sources

1. 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
2. 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). Rules under which a preparer or agent can be penalised alongside the business: IRS, "Tax preparer penalties" (United States); HMRC, Compliance Handbook CH81166 (United Kingdom); Revenue, Notes for Guidance, TCA 1997 Part 47, section 1055 (Ireland); Income Tax Act section 162(5.1) to (5.3) and CRA, IC01-1R2 "Third-party civil penalties" (Canada); Tax Agent Services Act 2009, sections 30-10 and 30-15 (Australia); Inland Revenue, "Shortfall penalties" (New Zealand); Income Tax Act 1947 section 95 (Singapore). More detail on your country page.  Back