View Full Version : Professional costs of HMRC enquiry/settlement/litigation

26th March 2015, 14:50
There have been various posts on various threads about this. Rather than repeat the below many times, I put it here.

The following is based on my experience and is indicative of the market at the moment. I appreciate that individual experience/preference may vary so please feel free to comment or observe.

High St accounting firms (i.e. smaller firms) charge clients by the hour. Rates vary according to the knowledge of the individual. Tax managers/partners probably start around £300/hour and go to say £600/hour for a senior partner. Generally larger firms (with more resources and people) charge higher levels. A Big 4 accounting firm or Magic Circle law firm might be looking to charge £1,000/hour.

For contractors, specialist firms/individuals might be better. Whilst they may not have the resources of a bigger firm they usually have experience, knowledge, expertise and focus on the specific matter in hand. Some of these firms charge hourly (perhaps mid range to the above) but there is a shift towards a retainer plus success fee basis happening.

That retainer/success fee model works best for groups of people in the same scheme as it allows the specialist firm to have some benefit from critical mass as some features will occur across many schemes.

The retainer/success fee model would normally exclude the costs of third party advice if that were needed. This might be a legal team, tax team, accounting expert, banking expert. A group would be better able to negotiate a good rate and spread the cost of such.

Monthly retainers vary in calculation and period. Most are based on a percentage of HMRC demand or loan value. A going rate might be between 0.1% to 0.25% per month. Contract length varies as well. A specialist might gamble on getting an agreement within say 18 months and limit his retainer to that period. Others may be less bold. A definite period is good for you but if it expires, where is the incentive for the adviser?

Success fees are more difficult. In some schemes where the final tax bill is not yet fixed in the mind of HMRC, a fee based on reduction in final tax to initial demand is seen. In schemes where HMRC has a fixed idea and therefore will take longer to be persuaded otherwise (if at all), then "success" might be delaying the final bill. It will depend on the scheme.

APN's offer more fee opportunities for some firms. The going rate for delaying an APN due date beyond the original is 0.1% per month. The going rate for reducing an APN is 1% of the reduction. These operate independently of the above retainer/success position.

So, how many chargeable hours to reach an agreed position? Hard to say obviously but allow for at least 50.

Is that agreed position much different from the settlement opportunity? You would hope so but there is no guarantee. You could end up paying most of the tax (interest/penalty) AND the 50 hours.

Is a specialist better value for money? Difficult one. More efficient in terms of time spent but may still come to the same answer on final liability. If the balance of fee can be tilted towards "success" then perhaps yes.

Is delaying/reducing the APN worth it? Very subjective decision.

It is undoubtedly the case that one advantage of a group of people in the same scheme coming together is better bargaining power on fees.

You have taken loans of £150k over three tax years. HMRC say you owe £50k in income tax and NIC. Perhaps some IHT as well. APN issued and due 30/5/15.

Accounting/law firm say 50 hours @ average £500 = £25,000 plus VAT of £5,000. Probably billed quarterly. A group approach might see individual bills reduce to perhaps 60% of the above?

Specialist says 0.1% of loan per month for 18 months = £150 x 18 + VAT = £2,700 plus £540 VAT. Success fee is 10% of reduction. Therefore NIL or say £500 plus VAT if a 10% reduction is achieved. Drawback is that specialist needs a minimum of say 40 people on these terms. Retainer paid monthly and success fee at the end.

I'm sure that there is variation in the market and that many will question the professional hours/rate etc. I offer the above however as an indication of what I see in the market.