Module 7: Ethics, integrity and fees

After this module you will be able to set out the professional obligations that apply to R&D claim work, explain how each fee model shapes the advice a client receives and what safeguards it needs, draft an engagement letter, and describe the claim integrity standards promoted by researchcreditintegrity.org. The client's side is in How to brief and evaluate an R&D tax advisor and at knowyourfees.org.

What this module covers

Professional obligations in claim work, and the client's continuing responsibility for its return.
Fee arrangements and the incentives each creates.
The engagement letter clause table.
Claim integrity standards and the practice quality control that delivers them.

Professional obligations in claim work

This module does not restate the rules of any professional body; it describes the obligations as they apply to this work. Competence means knowing the definition and the scheme in the country you file in. Due care means the file standard this program has built. Objectivity means the size of the claim is set by the evidence and not by the fee, and that you can show it. Not misleading means that nothing filed or said to a tax authority states more than the evidence supports, and that reconstructed documents are described as such.

The client remains responsible for its return: using an advisor does not, by itself, protect the company, and in the United Kingdom, for example, a company cannot show reasonable care merely by appointing an agent. Several schemes also ask who prepared or advised on the claim; the seven-country table gives the position in each.

Fee arrangements and their incentives

Fees vary widely. Contingent fees are commonly quoted as a percentage of the benefit, while fixed and hourly fees are also used, sometimes in combination. The fee model shapes the advice you receive, so understand what you are being offered. Whether contingent fees are permitted depends on the jurisdiction and the professional body the advisor belongs to; check which rules apply to you before quoting. This module does not state what any particular rule, code or court decision says.

Each model carries an incentive the letter has to manage. A fee set as a percentage of the benefit rises with the size of the claim, so the boundary drawn around each project and the decision not to claim a project are where the incentive bites hardest; the safeguards are the client's technical staff approving every narrative, documented rejected projects, review support included, and a stated consequence for the fee if the claim is reduced or repaid. A fixed fee removes that incentive but the letter must state the deliverables; an hourly fee needs an estimate. A well briefed client will ask six questions, and the answers belong in the letter: how the fee is calculated and what it amounts to in money; whether review support is included; what happens to the fee if the claim is reduced or repaid; who does the technical work; whether your own technical staff will approve the narrative before filing; and whether the advisor will be named on the claim where the tax authority asks for it.

The engagement letter

Topic	What to cover	Why
Scope	Entities, countries and periods; which services are included and which are not	An unfiled notification nobody owned forfeits the claim
Division of responsibility	Client provides technical staff and records; advisor analyses, calculates and drafts; client's technical staff approve each narrative; client's officer approves before filing	The client remains responsible for its return and must be able to show it checked it
Fee basis and amount	How the fee is calculated, what it amounts to in money on the client's expected numbers, and when it is invoiced	A percentage alone hides the amount
Reduction or repayment	What happens to the fee if the claim is reduced before filing, reduced on review, withdrawn or repaid, and over what period	The question most often left unanswered
Review support	Whether responses, meetings and appeals are included, for how long after filing, on what basis if not, and who leads	Settling this during a review damages the relationship
Who does the work	Named individuals, their roles and technical background, and when they may be replaced	The client is buying judgement, not a brand
Named on the claim	The advisor will be identified on the claim, form or application wherever the tax authority asks	Several schemes ask; refusal is a warning sign clients are taught to notice
Records and the file	What the advisor keeps, for how long, who owns the file, and the client's complete copy of everything filed	The client must be able to answer a review after the engagement ends
Decisions not to claim	Every rejected candidate project is documented with the reason and the list is given to the client	The main safeguard against a fee incentive to include everything

Claim integrity standards

researchcreditintegrity.org promotes rigour and integrity in R&D incentive claims and the conduct of those who prepare them. In a practice the standard is a set of things that happen on every file. Projects are identified by the client's technical staff and tested against the definition, with a documented decision on each. The narrative is written from dated evidence and approved by the technical lead. Costs reconcile to the ledger and to time records kept during the year. The advisor's incentives are disclosed and the engagement terms address what happens under review. Someone senior signs off, having seen the project list, the boundaries drawn and the total. The claim is the size the evidence supports, and every part can be explained by someone who was there.

The cost of falling short is set out in Why claim integrity matters. The quality control process that delivers the standard has five parts: a file standard listing the documents every claim must contain; a second reviewer who did not prepare the claim; written sign-off by the technical lead and the client's responsible officer; a record of decisions not to claim; and retention of the complete file for the period the country requires.

Illustrative example

Illustrative example. Harbour Robotics Ltd, a hypothetical company, briefs two practices for a claim expected to produce a benefit of 30,000 at that country's rate. Practice A proposes a hypothetical fee of 20% of the benefit and sends a letter that states the amount, 6,000, provides that if the claim is reduced on review to a benefit of 20,000 the fee becomes 4,000 and the difference is refunded, includes review support, requires the company's lead engineer to approve each narrative before filing, commits to being identified on the claim wherever the tax authority asks, and lists the rejected projects as a deliverable. Practice B proposes a fixed fee of 5,000 and prices review support separately. Both letters answer the six questions, so the company can compare them on one page.

Across the seven countries

Country	How the scheme identifies the preparer and treats errors
United States	The accuracy-related penalty under section 6662 is 20 percent of the portion of the underpayment attributable to negligence, disregard of rules or a substantial understatement; no accuracy-related penalty is imposed where the taxpayer shows reasonable cause and good faith under section 6664(c).
United Kingdom	The additional information form requires the details of any agent who advised on the claim and the senior officer of the company responsible for it. A company cannot show reasonable care merely by appointing an agent; it must take reasonable steps to check the return.
Ireland	Penalties for a deliberate or careless default are 100 percent, 40 percent or 20 percent of the tax, reduced for cooperation and for prompted or unprompted qualifying disclosures under the Code of Practice.
Canada	Where claim preparer information required on Form T661 is missing or incomplete, a penalty of C$1,000 applies, for which the claimant and the claim preparer are jointly and severally liable.
Australia	The customer portal is accessed with myID, by the company or an authorised tax agent or R&D consultant. Administrative penalties for a shortfall amount are 25 percent of the shortfall for failure to take reasonable care, 50 percent for recklessness and 75 percent for intentional disregard, with reductions for voluntary disclosure.
New Zealand	Shortfall penalties are 20 percent for not taking reasonable care, 20 percent for an unacceptable tax position, 40 percent for gross carelessness, 100 percent for an abusive tax position and 150 percent for evasion, reduced for voluntary disclosure and for previous behaviour.
Singapore	Errors disclosed within one year of the filing due date attract no penalty; later disclosures made before an audit attract a reduced penalty of 5 percent per year of the tax undercharged.

Module 7: Ethics, integrity and fee arrangements