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Contingency fees for Tax Services - SARS re-iterates this is a no

20 Oct 2023
Author: Neil Helps

Contingency fees for Tax Services - SARS re-iterates this is a no

In the October issue to its Tax Practitioners, SARS reiterated that the charging of contingency fees is not allowed. This charging of contingency fees was essentially outlawed since 2013 and also not allowed on the correction of tax returns since September 2023.

What is a contingent fee? It is a fee contingent or dependent on an amount of refund a client will receive after the submission of their tax returns. For example, a practitioner would only get paid a percentage on the tax refund they get for their client.

This practice has very clear flaws because it opens the tax system to clear abuse. This is why contingency fees were disallowed to begin with.

Often contingency fees are tied into a level of success in the task. Any guarantee to lower tax is not realistic, it is only after the processing and inspection of an individual or entity's economic and trading activities can conclusions be drawn, and these should be based on real data.

What SARS has said though, where contingency fees are allowed, then (as per SARS website):

" Where contingency fees are allowed, the tax practitioner must enter into a written agreement with his/her client. The agreement should contain sufficient information on:

  • The details of the tax practitioner and the taxpayer,
  • The outcome upon which the contingency fees are based and its percentage,
  • The consequences if the outcome is not achieved, and
  • When the contingency fees are charged.

The agreement should also contain a clause that gives:

  • The taxpayer client has the right to refer the agreement to the relevant RCB for review, and
  • The RCB has the authority to set aside any provision of the agreement or any fees claimable in terms of the agreement if the RCB finds such provision or fees unreasonable or unjust."

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