Choosing the right SR&ED consultant has significant implications for any company doing R&D. What is right for the business today may be different than three years from now because service offerings change and the company changes. This article will help you decide which is the best SR&ED consultant for your business.
Factors to Consider When Choosing Your SR&ED Consultant
Sure, value is important, but each company places different priorities on the items that come together to make up perceived value. We’re going to assume that you’ve made up your mind to hire an SR&ED consultant. Over eighty percent of companies hire a consultant. Those that don’t are most likely too small or very large, with some companies feeling that they can prepare the SR&ED claim internally. In no specific order, these are the most common considerations and priorities when partnering with a consultant.
Try this handy tool to help decide which consultant best suits your needs: SR&ED Consultant Matrix
Price
Price is important. I know some consultants that charge a 30% contingency rate and offer similar value to a consultant charging half the price.
A majority of consultants charge a contingency rate. This is true for independent consultants and large accounting firms. For everyone to win, the consultant must at least cover their cost, and the taxpayer must receive a substantial portion of the claim, ideally 100%. What seems to be fair is a fifteen percent (plus or minus five percent) contingency fee. Large accounting firms have large overheads and partners who make hundreds of thousands of dollars, so they will charge more. For publicly traded companies that are more restricted with their choice of tax service suppliers, the fee of a large accounting firm is worthwhile. Independent firms offer greater expertise but may not be able to offer the breadth of services as a large accounting firm and will often have a lower contingency fee.
There is usually the opportunity to negotiate with the SR&ED consultant. Because there are many firms offering SR&ED consulting services, negotiating or looking for alternatives every two to three years will drive the best pricing.
There are many pricing models available. While contingency fees are the most popular (predominantly because they align with the interests of the consultant and taxpayer), there are fixed fees, hourly fees, capped fees, and a mix of these pricing structures. More info about pricing and the cost of different SR&ED consultants is available in our “Understanding SR&ED Consulting Fees: How Much Do SR&ED Consultants Charge?” blog.
Reputation
Don’t hire a firm that has a poor reputation. There are a few of them around. Typically, where there is smoke, there is fire. A bad reputation can come from a firm being overly aggressive with a claim, trying to force the taxpayer to file an SR&ED claim, internal staffing challenges, being on the wrong side of the CRA, or a high audit rate are amongst the issues that can tarnish the reputation of an SR&ED consulting firm.
Generally, multinational accounting firms have a good reputation. Most of the independent SR&ED consulting firms also have a good reputation. The decision about reputation is binary rather than on a scale. It would be difficult to say that EY has a better reputation than Deloitte or that Deloitte has a better reputation than EY. They are both quality firms with nothing to be concerned about their reputation.
If you are concerned about the reputation of a firm, ask probing questions. Ask for specific data, and ask to talk to a client that is in a similar geography or industry. Don’t fall for a sales pitch without doing due diligence. An SR&ED refund is too important not to put the work into picking the right consulting partner.
Audit History
There are two questions to ask a potential SR&ED consultant about their audit history. The first is what percent of the claims they submit have been subjected to an audit. The second is, of those that have been selected for audit, what was the adjustment rate?
The percent of claims the CRA reviews varies annually, but in recent years it has fallen to approximately 10% of claims being subject to a full review. Other claims are pulled for a desk review, or you may be asked to answer some financial questions. Therefore, on average, consulting firms should have approximately 10% of the claims they submit subject to review. If the consultant has significantly higher numbers of claims pulled for review, this is a signal to avoid the consultant. The effort and cost of going through a review is significant.
All consultants will have claims that they submit be subject to review, the more important question is what percentage of the credits they submit to the CRA are accepted. Historically, the average was a measly half. However, this information is slightly dated, and it is most likely higher than this. If most consultants have an average of 10% of their claims being reviewed and receive on average 50%, then they can claim that they receive 95 cents on every dollar they submit. Realistically, you would want to engage a consultant who has at least a 95% success rate to be sure you are partnering with a quality SR&ED consultant.
Communication
The ease and comfort of communication with a consultant are important. Does the consultant have a quarterback who manages the account? Is the salesperson part of the delivery team? Is the communication frequent, timely and on topic? Do you have a choice between phone and email communication? There are so many factors to consider when determining which communication style is best for you and your team. What is critical is that the communication is effective and efficient. Interview clients or former clients of the consultant and ask them specific questions about communication. No one enjoys fire drills close to the SR&ED submission deadline. Be certain you feel comfortable with the level of service the consultant provides so you don’t end up being frustrated and left in the dark.
Speed
The sooner you file your taxes, the faster you will receive your SR&ED refund. Therefore, perhaps it is important to you to prepare the SR&ED claim as soon as the fiscal year has ended, or perhaps there is a small window that the company has to prepare the SR&ED claim. Either way, it is important that the consultant be available and have the resources to work on the claim when you need it. While many consultants have a number of staff members, the only way that they can be profitable is to load the staff with as many clients as possible. This can be a bottleneck, especially in June, when many taxpayers are approaching their 6-month filing deadline.
Ask the SR&ED consultant how long it takes to prepare a typical claim. Ask what is the quickest they can prepare the claim. Find out if they guarantee to accommodate your schedule or if there are any limitations. The best scenario is that the consultant will prepare the claim on your terms. That means if you want the whole claim to be completed in a week, you are able to.
Quality of SR&ED Claim
Judging claim quality is almost impossible. It is better to look at the audit adjustment rate, reputation and other factors. The quality of the claim is fundamentally predicated on the SR&ED consultant finding as many qualifying SR&ED projects as possible, ensuring the accounting is done correctly and there is sufficient documentation to support the claim.
Expertise
The main focus for expertise should be the technical capability of the consultant. This does not minimize the importance of the accounting function; however, accounting for SR&ED is relatively simple compared to the technical expertise. Additionally, most SR&ED consultants do not prepare corporate tax returns. There is certainly complexity when considering the full T2 corporate tax filing, but most SR&ED consultants focus only on preparing the schedules associated with SR&ED.
The challenge with SR&ED consultants is that they may or may not have a person who is an expert in the specific technology of the client. Great technical consultants are experts in a domain and understand the critical items the CRA is looking for to build a defendable SR&ED claim. The greater the experience and expertise an SR&ED consultant has in the field of science of the claimant, the greater the likelihood the claim will be maximized and conform to the CRA guidelines.
When interviewing a consultant, ask who will be your primary technical consultant. Find out how many years this person has worked with the consultant and try to understand if they will be a good fit for your needs.
Ethics & Integrity
It goes without saying that a consultant must possess the highest levels of ethics and integrity, but this is not always the case. Generally, the larger the consultant, the less one needs to even consider ethics and integrity. However, there are some small and mid-size consultants who “play the numbers” and file claims that they know most likely don’t qualify for SR&ED but hope that they are not subject to a CRA review. Thankfully, there are very few bad actors in the consulting community. The CRA began collecting information on the claim preparer many years ago. This information, coupled with other details, may be used by the CRA to identify high-risk claims. Because the CRA was able to target higher-risk claims more effectively and impose penalties, unethical SR&ED consultants are few and far between.
Minimize Your Time
The amount of time that the taxpayer spends preparing the SR&ED claim relative to the consultant is the number one complaint I hear. Some consultants send forms out to be completed by project leaders, others ask for a significant amount of data collection and others have multiple interviews, each taking considerable time.
Some taxpayers feel that they are too busy to file an SR&ED claim. With the right consultant, this should not be an issue. Typically, large accounting firms will put a fair amount of work on the company to prepare their SR&ED claim. Independent SR&ED consultants are better as they do more heavy lifting. Here at GrowWise, we’re laser-focused on bringing automation to the SR&ED preparation process so that it minimizes your time and maximizes the SR&ED claim.
Maximize SR&ED Claim
Maximizing a claim is not as simple as it sounds because if a taxpayer is too aggressive, there is a higher likelihood the claim will be selected for review and adjusted but if the taxpayer is too conservative, they may leave money on the table. In addition, the “level of detail” of which the technical project is determined is important to maximize a claim. The level of detail cannot be too low because discrete tasks rarely qualify for SR&ED. It can also not be at too high a level because this may encompass multiple technical uncertainties, which confuse matters.
One of the greatest benefits of an SR&ED consultant is determining what most likely qualifies for SR&ED and is worth submitting to the CRA. By understanding the tax laws and regulations, a good consultant can quickly determine which projects should be eligible and which are not.
Finding the Best Fit
Everyone has a different preference for how they would like to engage their consultant. Most companies want great services, high availability, smart people, quick turnaround and strong support if faced with a challenge. While salespeople often paint a rosy picture of the company, ask for references and specific questions to ensure that the way the consultant works is compatible with how you want to interact with them. Some consultants have a manual process, while others are more automated. Some consultants have few people who get very stretched, while other consultants are not very busy. Find the consultant that you feel provides the best service and is a long-term partner.
Final Thoughts: Finding the Right SR&ED Consultant for Your Business
Choosing an SR&ED consultant is a strategic decision that can significantly impact your company’s financial returns and efficiency. While price, reputation, audit history, communication, and expertise are all important factors, the best consultant for your business is the one that aligns with your unique needs and long-term goals. Since both your company and the SR&ED landscape will evolve over time, it’s wise to reassess your consulting partner every few years to ensure you’re still getting the best value and service.
At GrowWise, we simplify the SR&ED process with our AI-powered platform, ensuring accuracy, speed, and minimal effort on your part. Our goal is to help you maximize your claim while making the experience stress-free.
Ready to see how we can help? Try our SR&ED Consultant Matrix to assess your options, or book a quick call with our team to explore a smarter approach to SR&ED.
