The CEO of one of the UK’s leading innovation tax specialists has called for contingent fees to be fully embraced by clients seeking the best possible outcome for their R&D and innovation tax credits strategy.
Luke Hamm, CEO of GovGrant, which specialises in helping firms claim tax credits from their innovation and intellectual property which can then be re-invested, said that contingent (or success fees) were a better means of deriving full value from a claim than fixed fees or hourly rates.
He said that contingent fees had unfairly been viewed as unscrupulous due to the “ambulance-chasing” methods of some companies.
But he said that regulation should champion this fee model where there is a tangible benefit to clients, particularly as they are linked to the success of the work undertaken.
“If an auditor is also doing contingent work, their fee needs to be modest not material to avoid risk or unnecessary bias in the audit, so the bigger firms choose to undertake contingent work on a fixed fee basis rather than payment by results. The result is the client doesn’t get a successful claim or a claim which undervalues the extent of innovation in that business.”
Luke explained that no win/no fee and contingent fees are common in other professional services, especially civil justice, or reclaiming tax, where there is a level of uncertainty, or it is hard to identify the expected benefit.
Despite government encouraging more people to make innovation tax claims, some companies may be put off investigating a claim altogether, since they don’t know what the cost will be, he said.
“When you tell someone you don’t know what they are going to get out of it, it’s very difficult for a company of any size, whether it is a small business spending their own money or a big company that’s got to go through a sign-off process, to commit when they don’t know what the answer is going to be,” Hamm said.
The risk should instead be shared between specialists and their clients, he said.
The future of fees
As digitisation moves apace, accountants – or any other professionals – charging per hour of their time will become a thing of the past, Hamm said.
“We are walking into a world of greater automation, people wanting things more quickly or instantly. That’s true of individual consumers, but also of businesses.”
He said that it is common now for businesses to look for their own solutions, through software for example, to reduce the cost of fixed fees where they are paying by the hour.
“This, for me, will be the biggest change that all professionals have to get their head round – that time is no longer the asset you are selling,” Hamm said.
Nevertheless, the challenge is on to implement this in the audit and consultancy spheres. This is despite numerous calls from government, including the BEIS committee, to split the audit function from consultancy.
“The Big Four are judge and jury when it comes to audit risk and tax, because government consults them and this enables them to control the regulatory framework,” said Luke Hamm.
“Accounting scandals come and go but nothing seems to change, because the Big Four don’t want to change. Their complex corporate structures means unwinding their audit and consultancy would be difficult. In summary, and despite a litany of costly scandals in the last twenty years, meaningful change is still in the ‘too hard’ basket for policymakers.”
- What do you think? Are contingent fees the future? Leave your comments in the space below.