What work are you doing, and how much?
Well, first, take a step back and review what your service actually provides. What are you doing for your clients? What deliverables do you produce? Where does your service begin and end?
If you have a very light-touch business model, you may be best charging a fixed fee or working on an hourly rate. For example, this might be appropriate if you provide a review service, in which your client authors the R&D report, and you give feedback. Fixed fee models tend to be good for more predictable work, such as where a client has a track record of making successful claims. These also tend to cost the client less overall.
In contrast, if you’re doing the bulk of the work to prepare the claim, then it may be more appropriate for you to charge a percentage of the tax benefit. This is commonly known as a contingent or ‘success’ fee. If you’re completing tasks like interviewing staff about their work, drafting documents, collecting costs, and coordinating the claim, contingent fees may work best. The contingent model tends to be more palatable to the client if there’s any doubt about the success of their claim, because they know they don’t have to pay until they’ve received their tax benefit.
Enquiry defence is also an important consideration. How will you handle it if HMRC open an enquiry on your client’s claim? If you’re working with a particularly risky client, you’ll want to be clear and up-front about whether you’re including enquiry defence in your fee. Be aware that clients will often assume this to be included if you’re charging them a ‘success fee’. Also, remember that success fees are inherently riskier – if the client loses the whole claim at enquiry, you’ll have to pay back your fee.
On the other hand, if you’re offering a light touch service at a fixed price, you could choose to offer an additional service to clients who do get an enquiry, and charge for it separately.
What are your business objectives?
You’ll also want to consider whether the goal of your service is
- to maximise your revenue or
- to focus on quality and the longevity of your service.
Many providers start out trying to do both, but invariably end up in one camp or the other.
If revenue is your top priority, you can drop prices to ‘switch’ people to you from other providers. If you do this too aggressively, you’ll then have to deliver a service that’s proportionate to the fees you’re charging.
On the other hand, if your aim is to deliver a high-quality service, then you don’t want to get into a bidding war on price. Instead, keep your price firm and work only with the people that value your knowledge, experience, and service enough to pay for it. This allows you to give clients straight advice about the extent of their eligibility, and to spend more time finding legitimate ways to maximise their claim. This can reduce the risk of an enquiry, and of a significant loss in claim benefit down the line.
What are your costs and cashflow considerations?
Another factor in your pricing is the type of staff you employ. If you’ve invested in people with lots of industry experience, or who already have a lot of experience in R&D tax relief, you may not be able to charge your clients low, fixed fees. Charging on a contingent basis is more likely to give you the funds to pay for these expensive staff.
Alternatively, if you’re using junior staff to prepare claims, your employment costs will be lower – but they might not have the experience or confidence to tackle more demanding work, like enquiry defence, making it harder to charge a premium for your service.
A warning about contingent fees – you’ll generally need to wait for your clients’ claims to be processed before you can invoice. HMRC used to aim to process claims within 28 days, but now they are working to 40 days or longer – and more claims than usual are being held up. You’ll need to make sure your cashflow model is robust enough to withstand these unpredictable timelines.
Contingent or Fixed-Fee pricing – a comparison
In short, there are many varied factors that affect how you price your R&D service. As a useful summary, we’ve pulled together the ones we’ve mentioned into the lists below. These show the characteristics of fixed fee and contingent fee models.
Common characteristics of a Fixed-Fee model
You can invoice when the claim is submitted to HMRC.
Typically, the R&D service
- is a review and advisory service
- uses junior people with general business skills
- does not include enquiry defence
- relies on prompt, predictable payments.
Common characteristics of a contingent fee model
You can invoice when the claim is processed by HMRC, at least 4-6 weeks after it’s submitted.
Typically, the R&D service
- involves interviewing clients, establishing eligibility, preparing reports, and gathering costs
- uses engineers or people with lots of R&D experience
- includes enquiry defence
- can afford to wait for payment.
Of course, your service may be a combination of these, so you might find that it doesn’t fit neatly in one category or the other. There’s no rule that you have to offer fixed fees if you only offer a review service, for example! You need to weigh up all the considerations to find a structure which works for your business. That could even include a combination of fixed and contingent fee services for clients with varied needs. The most important thing about your pricing is that it’s clear, and that it works for you and your clients.
More guidance on running your R&D service
If you’re an accountant who’s running, or thinking about, an in-house R&D service, our detailed guide How to run an in-house R&D service will give you advice on pricing, staffing, and structuring your service. It includes comparison tables and worksheets to help you make the best plan for your business, whether it’s brand new, or already up and running.
If you want more hands on support we can offer that too. Help with pricing is just one of the ways that we help our members to run profitable, competitive, and ethical R&D businesses. To learn more about how we do this, explore our membership details and pricing.