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A fixed-fee pricing model can look like the most cost-effective option when a business chooses an R&D tax adviser. Fixed fees offer certainty upfront, as costs are agreed and finance teams can forecast accordingly. However, while fixed fees can work well in certain circumstances, they can sometimes result in higher overall costs and less value. It is therefore important to weigh up cost against value, particularly where a claim is complex or additional support may be needed.
Companies should also consider the support they would need if HMRC opens an enquiry. Responding to an enquiry can demand substantial adviser time, detailed documentation and technical explanations, particularly where the claim is complex. While some fixed-fee arrangements include enquiry support, the extent of that support is not always clear. This can create a gap between client expectations and what the contract provides.
A contingency arrangement can encourage ongoing engagement where enquiry support is included and the adviser’s fee reflects the benefit ultimately retained. However, payment on receipt of the benefit does not, by itself, guarantee this alignment. Businesses should check what support is included and what happens to the fee if a claim is reduced or rejected. Where enquiry support falls outside a fixed fee, additional charges could significantly increase the overall cost.
Illustration
Fixed fee versus contingency fee
The size and certainty of the claim itself also matter. Unlike a percentage-based contingency fee, an agreed fixed fee does not automatically rise or fall with the tax benefit achieved. For smaller claims, a business can end up paying more on a fixed-fee basis than under a contingency model.
Consider two alternative arrangements for a business receiving a £20,000 R&D tax benefit:
Example 1
An £8,000 fixed fee
The business pays an agreed fee of £8,000, equivalent to 40% of its tax benefit. This leaves £12,000 after the adviser’s fee.
Example 2
An agreed contingency fee of 20%
The business pays 20% of the benefit achieved: £4,000. This leaves £16,000 after the adviser’s fee – £4,000 more than under the fixed-fee arrangement.
The fixed fee provides upfront certainty, but the contingency arrangement offers better value in this example. If the benefit falls while the fixed fee remains unchanged, the fixed fee absorbs an even larger proportion of it.
Figures are illustrative and assume equivalent scope, with no minimum fee or additional charges. VAT and any tax effect of adviser fees are excluded.
Comparing pricing models for R&D tax advisory services
Under a contingency-based model, the adviser has a direct financial incentive to identify all qualifying R&D activity. With a fixed-fee model, the adviser must balance the work required against the time budgeted for the engagement. In our experience, work can stop once that budget is exhausted, leaving less obvious projects, or even entire business units, unexplored. The client can therefore miss out on eligible expenditure despite paying the agreed fee. However, the incentive to increase a claim also makes the adviser’s approach to risk important. Businesses should ask about enquiry rates and outcomes: the objective is to identify all qualifying activity, not to include expenditure that cannot be justified.
That said, fixed fees are not to be overlooked. They can work well in long-term, established relationships where the scope is well understood, R&D activity is consistent and both sides are aligned on expectations, including how enquiries will be handled. In these scenarios, fixed fees can provide efficiency and predictability.
However, for businesses working with a new adviser, fast-growing businesses, or those experiencing significant change, flexibility may become more valuable than certainty. Where claim values or the work required are difficult to predict, a contingency-fee approach can offer better overall value, depending on the agreed terms.
Ultimately, the most cost-effective option is not determined by pricing model alone. Businesses should look beyond the headline fee and consider the balance between cost, risk, scope and alignment of goals. That means understanding the work included, the support available if a claim is challenged and any circumstances that could lead to additional charges. A fixed fee may make budgeting easier, but that does not automatically make it the best-value option.
