The cost to genuine claimants (brief) | Research Credit Integrity Alliance

Key points

HMRC estimated error and fraud at 25.8 percent of expenditure in the UK SME scheme for 2021 to 2022, then checked 17 percent of claims, with checks taking 246 days on average.1
The UK cut the SME payable credit rate from 14.5 to 10 percent in 2023, "in part" in response to error and fraud.2
Every federal research credit refund claim has required specific information since January 2022, because such claims "consume significant resources for both the IRS and taxpayers".34
For the employee retention credit, a different credit, eligible businesses faced lengthy payment delays after a surge of improper claims.56
No official source measures how much incorrect claiming is caused by contingent fees.

The United Kingdom

HMRC's random enquiry programme found that around half of SME claims in 2021 to 2022 were non-compliant in part or in full. Fraud indicators appeared in fewer than 10 percent of cases; most non-compliance came from other behaviors, including mistakes.1

The response reached every claimant. From 2023 all claims must be made digitally with an additional information form naming a responsible officer and any advisers, and first-time claimants must notify HMRC in advance.1 HMRC's R&D compliance staff grew from around 100 to over 500.1

Measure	2022 to 2023	2023 to 2024
Compliance check coverage	10%	17%
Average time to complete a check	269 days	246 days
Checks resulting in an adjustment	71%	77%
Complaints received	212	423

Source: HMRC, excluding large business cases.1

Nearly a quarter of checks in 2023 to 2024 led to no adjustment. HMRC has said that post-payment checks create "uncertainty for customers about whether their claim might later be found to be non-compliant and their payment recovered".1 The National Audit Office records that the 2023 rate cuts were "in part, a response to the estimated level of error and fraud for the SME scheme".2

Elsewhere

Canada's Department of Finance said in 2012 that if contingency fees encouraged aggressive positions, this "would increase the costs for the Canada Revenue Agency to administer the SR&ED tax incentive program, in addition to increasing the overall fiscal risks".7

The United States

The IRS introduced its refund claim information requirements for all research credit refund claims, explaining that it receives thousands of claims each year and that they "consume significant resources for both the IRS and taxpayers".3 Claimants found deficient have 45 days to perfect their claims.4 For tax years beginning after 2025, most claimants must also report business component information in Section G of Form 6765, unless they fall within the exemption for smaller claims on original returns; the IRS estimates average recordkeeping time for the form at over ten hours.8

For the employee retention credit, the IRS stopped processing new claims in September 2023, extended its processing goal for existing claims from 90 to 180 days, and said aggressive marketing was "delaying the payment of legitimate claims".5 In 2024 the National Taxpayer Advocate reported "lengthy delays in the payment of eligible claims submitted by employers that, in some cases, are depending on ERC refunds to remain in business".6 The IRS linked the problem to promoters charging contingency fees of up to 25 percent.5 That record concerns a different credit and is not evidence about research credit advisers.

Where fee structure fits

Incorrect claims have many causes. Several authorities have nonetheless named adviser pay as one: HMRC restricted payments to agents to reduce "the financial incentive for agents to overstate claims".1 Treasury has proposed treating contingent fees for returns and refund claims as disreputable conduct because a practitioner with a financial interest in a client's tax benefits "may be incentivized to increase such tax benefits"; the proposal is not final.9

The case for success fees

Success fees bring in genuine small claimants who would not pay upfront. Compliance tools, not fee rules, target bad claims directly. And no official data shows that contingent-fee claims are wrong more often. Nothing in this brief suggests that advisers who charge success fees prepare incorrect claims.

The answer is that affordable pricing does not require a percentage; that the UK record shows compliance tools carry real costs for correct claimants; and that the data gap exists because no federal form asks how a preparer was paid.8

Our position

Congress should prohibit contingent fees, commonly called success fees, in federal research and development tax credit engagements under Section 41, so that advisers are paid for the work they perform rather than for the size of the claim they produce. Swanson Reed, which publishes this brief, is a fixed-fee R&D tax adviser with a direct commercial interest: it does not charge success fees, and a ban would remove a pricing model it competes against.

References

HM Revenue and Customs, Approach to Research and Development tax reliefs 2023 to 2024 (published 30 October 2024), sections 1.2, 2.1, 2.4 (Tables 4 and 5) and Annex B, Theme 1. https://www.gov.uk/government/publications/hmrcs-approach-to-research-and-development-tax-reliefs-2023-to-2024/approach-to-research-and-development-tax-reliefs-2023-to-2024 (accessed 11 October 2026). Back
National Audit Office, Report by the Comptroller and Auditor General: HM Revenue & Customs 2023-24 Accounts, paragraph 2.19. https://assets.publishing.service.gov.uk/media/6889f286048fff613a4d5b72/Report_by_the_Comptroller_and_Auditor_General.pdf (accessed 11 October 2026). Back
Internal Revenue Service, IRS sets forth required information for a valid research credit claim for refund, News release IR-2021-203, 15 October 2021. https://www.irs.gov/newsroom/irs-sets-forth-required-information-for-a-valid-research-credit-claim-for-refund (accessed 11 October 2026). Back
Internal Revenue Service, Research credit claims (Section 41) on amended returns frequently asked questions, introduction and question 7 (page last reviewed or updated 1 October 2026). https://www.irs.gov/businesses/corporations/research-credit-claims-section-41-on-amended-returns-frequently-asked-questions (accessed 11 October 2026). Back
Internal Revenue Service, News release IR-2023-169 announcing a moratorium on processing new Employee Retention Credit claims, 14 September 2023. https://www.irs.gov/newsroom/to-protect-taxpayers-from-scams-irs-orders-immediate-stop-to-new-employee-retention-credit-processing-amid-surge-of-questionable-claims-concerns-from-tax-pros (accessed 11 October 2026). Back
National Taxpayer Advocate, Annual Report to Congress 2024, Executive Summary: Preface and Highlights, Preface, summary of Most Serious Problem 1. https://www.taxpayeradvocate.irs.gov/wp-content/uploads/2024/12/ARC24_ExecSummary.pdf (accessed 11 October 2026). Back
Department of Finance Canada, Consultation Regarding the Impact of Contingency Fees on the Effectiveness of the SR&ED Tax Incentive Program (2012), section "Effects of Contingency Fees", archived copy of 7 May 2013. https://web.archive.org/web/20130507033404/http://www.fin.gc.ca/activty/consult/sred-rsde-eng.asp (accessed 11 October 2026). Back
Internal Revenue Service, Instructions for Form 6765 (Rev. December 2025), "Requirements To Complete Section G" and "Paperwork Reduction Act Notice"; the instructions were read in full and contain no question on how a preparer was paid. https://www.irs.gov/instructions/i6765 (accessed 11 October 2026). Back
Treasury Department and Internal Revenue Service, Regulations Governing Practice Before the Internal Revenue Service, notice of proposed rulemaking, REG-116610-20, 89 FR 104915 (26 December 2024), Explanation of Provisions part B. https://www.federalregister.gov/documents/2024/12/26/2024-29371/regulations-governing-practice-before-the-internal-revenue-service (accessed 11 October 2026; a Federal Register docket search on that date showed only the proposed rule). Back