Should You Outsource Your SR&ED Claim or Do It In-house?
Scientific Research & Experimental Development (SR&ED) is a Canadian government tax credit program aimed at encouraging businesses of all sizes to conduct R&D to develop new — or improve existing — methods, processes, services and products
SR&ED Investment Tax Credits (ITCs) provide tax relief to eligible Canadian businesses to offset the cost of innovation.
One of the decisions you’ll need to make when wanting to claim R&D tax credits is whether you want to outsource it to a professional consulting firm, or if you would rather handle your claim in-house. We generally lean towards the former and in this article, we’ll explain why we feel this way.
Your company may receive a substantial amount of investment tax credits if your claim is approved. Although it sounds easy to submit claims, this is unfortunately not the case.
The disadvantages and advantages of outsourcing SR&ED claims to a professional consulting firm are listed below:
Disadvantages of Outsourcing SR&ED Claims
Documentation must be Shared Externally
If you would prefer to outsource your SR&ED claim, you will have to share important documentation externally with SR&ED consultants. To help you prepare for your claim, they have to review relevant financials including time tracking sheets and T4s, as well as your technical documentation.
Value-added expertise and service always come at a price. Many SR&ED consultants are however prepared to offer their services on a contingency basis. This means you’ll only need to pay them once your claim has been processed successfully. As you will both have a vested interest in the outcome, they will put in the required effort to help you get your claim through successfully as they will only get paid after a few months.
Advantages of Outsourcing SR&ED Claims
Save Internal Time
Your technical team will be able to continue building great technology, and focus their time getting your products out the door or conducting research and development if you outsource your claim. It is very likely that your CTO won’t have the time or expertise to prepare SR&ED financials and technical reports.
Your company’s main goal will be to make a profit and using your internal staff time to prepare tax credit claim documentation will ultimately distract them from this goal. At SR&ED consultants generally understand this and will install processes to help make the claim process as easy as possible while at the same time aiming to minimize internal staff disruption.
Leverage Specialized Expertise
It can be quite difficult to decipher what’s not eligible and what’s is. Experienced consultants often discover many other projects that are eligible when working with a company. These had often not been claimed by the company due to lacking a full understanding of the program. Consultants are very familiar with the program’s intricacies and will be able to help you establish processes and advise you on technical documentation that will ensure your claim will be properly supported during a CRA Review.
SR&ED consultants are specialists and it is often all they do, making them extremely efficient in understanding and applying the terminology the Canada Revenue Agency (CRA) requires. The consultant will be able to discuss these requirements with your staff in layman’s terms and they will also be able to explain your technology to the CRA in terms they will recognize and understand. Consultants will also often employ technical staff that has extensive experience in the industry, enabling them to understand technical conversations.
Having worked across a wide range of industries, they have in-depth knowledge of what other companies have claimed, both in terms of finances and technological content, and can apply this knowledge to your claim.
Consultants also provide a wider perspective. Companies sometimes focus their claims solely on a new product development or R&D department’s activities. Consultants can broaden the scope substantially by looking at the company holistically and may for example be able to identify activities that might be eligible in tendering, packaging, or production. As the scope of the SR&ED scheme is very wide, this alternate frame of reference together with their experience of SR&ED claim preparation can assist in identifying methods for your company to improve the monitoring of R&D activities in the future.
Help with CRA Reviews and Audits
SR&ED consultants help clients with their claims from beginning to end, including CRA Reviews and Audits. CRA Reviews require thorough preparation and can be very intense. Experienced SR&ED consultants will explain what you should expect, help you prepare, and will participate in the Review meeting. This will relieve pressure on internal resources and enable them to rather focus on normal business activities.
To ensure the scheme is applied fairly, audits are required. Consultants will support companies throughout this process and will gain experience of what the CRA looks for every time they attend an audit. The consultants can then better instruct other companies when assisting them in preparing claims.
Find Out How Much Money You Can Recover From The CRA
Book a conversation with one of our SR&ED tax credit experts.
Fill out the form to schedule a conversation, where we can help identify:
- What projects qualify and which R&D expenditures are eligible
- An estimate of the total return you can expect
- How to maximize the size of a claim & and to optimize for the success of that claim
- Potential eligibility for additional Government funding programs
- If you are already claiming, we will analyze your past claims to determine if anything was missed
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Claims accepted as filed