Unclear fee base
A percentage of 'the benefit' can mean the credit, the refund, the tax saved or the spend behind the claim. If the letter does not say which, you do not know what you are paying.
A red flag is a reason to ask more questions. It does not mean an adviser has done anything wrong. This page describes a practice in general terms and is not about any particular firm.
When it is a problem
- The letter names a percentage of "the benefit", "the value" or "the claim" and does not define the term.
- The amounts the percentage could apply to differ by a lot, for example the credit and the qualifying spend behind it, and the letter does not say which.
- It is unclear whether the fee applies to the amount claimed or the amount received, so you do not know what happens if the claim is reduced.
- The adviser cannot give you a worked example on your figures.
When it is not a problem
- The letter uses a term it defines elsewhere, and the definition is clear once you find it.
- The adviser has given you a worked example that shows exactly which amount the percentage applied to, and the letter matches it.
- The fee is not a percentage at all, and "the benefit" is used only to describe what the claim is for.
- The base is unclear in the proposal but the adviser agrees to write a precise definition into the engagement letter before you sign.
What to do
- Ask the adviser to say in one sentence what the percentage applies to, and to put that sentence in the letter.
- Ask whether that amount is as claimed or as received, and what happens to the fee if the claim is reduced.
- Ask for a worked example at the claim you expect.
- Check the definition against the fee basis clause page before you sign.
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