Managing your company’s Scientific Research and Experimental Development (SR&ED) claims is a pivotal consideration for Canadian businesses engaged in innovation. A critical decision is whether to prepare SR&ED internally or to engage external consultants to take care of it. This comprehensive analysis explores the advantages and disadvantages of managing SR&ED claims internally in 2025, providing insights to executives of innovative companies to make informed choices, based on the status and stage of their company.
Advantages of Preparing SR&ED Internally
Cost Savings
Managing SR&ED claims internally can lead to significant cost savings by eliminating consultancy fees, and therefore, preserving 100% of the tax credits. This approach allows companies to allocate funds directly to research and development activities, thereby enhancing innovation.
SR&ED consultants typically charge between 10%-25% of the SR&ED claim as a contingency fee, meaning that preparing the claim internally could theoretically save your company a quarter of your R&D costs. The cost savings is the most obvious, and common reason that companies choose to prepare SR&ED internally.
In-House Expertise Development
Developing internal knowledge and capabilities related to SR&ED processes and requirements can be beneficial in the long run. This expertise enhances the company’s ability to identify eligible projects, maintain compliance, and streamline future claims. An in-house team familiar with the company’s operations can effectively document R&D activities, ensuring that all eligible projects are accurately captured. We often see that companies with at least a bit of in-house knowledge, even if they have hired a consultant to prepare the claim, still often have larger SR&ED claims as they can identify all eligible costs and produce contemporaneous documentation throughout the year.
Moreover, building internal expertise on SR&ED fosters a culture of continuous improvement and innovation. Technical teams with knowledge of SR&ED are often more keen and more likely to support management in identifying SR&ED-eligible expenses as they arise. This leads to a larger SR&ED claim and more projects that involve innovation. In our Strategies to Maximize SR&ED Claims blog, we discuss offering bonuses to employees involved in SR&ED, which can motivate employees to track projects more thoroughly and further develops a strong SR&ED understanding.
Enhanced Integration with Company Operations
An internal team can seamlessly coordinate between R&D activities and SR&ED claim preparation, ensuring that all eligible projects are accurately documented and claimed. This integration facilitates real-time tracking of R&D efforts, allowing for timely identification of SR&ED-eligible activities. Furthermore, internal management promotes collaboration among departments, leading to a more cohesive approach to innovation and compliance.
Disadvantages of Preparing SR&ED Internally
Complexity of SR&ED Regulations
Navigating intricate and ever-evolving SR&ED guidelines can be challenging. Without specialized knowledge, companies may struggle to interpret the criteria accurately, leading to potential errors in claims. The SR&ED program has very specific eligibility requirements, and misinterpretation can result in denied claims or a CRA SR&ED review. Staying updated with regulatory changes requires continuous learning and adaptation, which can be resource-intensive.
Resource Allocation
Diverting internal resources from core R&D activities to manage SR&ED claims can be inefficient. This shift may impact productivity and the timely completion of development projects. Employees tasked with SR&ED claim preparation may experience increased workloads, leading to potential burnout or decreased team morale. Balancing SR&ED responsibilities with primary job functions requires careful planning and management. The value that a senior developer or R&D manager can bring in developing innovating solutions for a company is typically far greater than the cost of a SR&ED consultant.
Training Costs
One must also consider the internal costs associated with training and dedicating staff to SR&ED claim preparation. Becoming adequately familiar with the SR&ED program to be able to complete the SR&ED claim requires significant time and therefore costs to the company. Depending on the company and the complexity of the claim, the cost of dedicating internal resources to learning the program and creating the SR&ED claim may be higher than the cost of paying a consultant to prepare the SR&ED claim.
Risk of Incomplete or Inaccurate Claims
The potential for errors or omissions exists, which could lead to reduced claims or audits. Inaccurate claims may result in loss of credibility with tax authorities. Ensuring compliance necessitates meticulous documentation and a thorough understanding of SR&ED criteria. Internal teams must implement robust review processes to mitigate risks associated with claim inaccuracies. In the case of an SR&ED audit, most SR&ED consultants, including GrowWise offer support, guidance and expertise to manage the SR&ED audit to make it as simple as possible for you. Many companies hire SR&ED consultants for the security, support and assistance they can provide in case of an audit.
Factors to Consider When Deciding
Company Size and Resources
Larger companies may have the capacity to develop internal expertise, while small and medium-sized businesses often find it more efficient to outsource. Assessing available resources is crucial in making this decision. Companies must evaluate their financial capacity, personnel availability, and infrastructure to support internal SR&ED management. Resource constraints may necessitate outsourcing to ensure compliance and maximize benefits.
Existing Internal Expertise
The availability of staff with knowledge of SR&ED requirements and tax regulations can influence the decision. Leveraging existing expertise may reduce the need for external consultants. However, if internal knowledge is limited, investing in training or hiring specialized personnel becomes necessary. Companies must assess the competency levels of their teams as well as their internal capacity to identify gaps that could impact SR&ED claim success.
Risk Tolerance
Willingness to accept the potential risks associated with internal management, such as compliance issues, is a critical consideration. Companies must evaluate their comfort level with these risks. In the case of an SR&ED audit, typically SR&ED consultants provide guidance, support and insights on how to handle the CRA. Risk-averse organizations may prefer the assurance provided by experienced consultants, while those with higher risk tolerance might opt for internal management. Conducting a risk assessment can aid in understanding the potential implications of each approach.
Conclusion
Weighing the pros and cons of managing SR&ED claims internally is essential for companies aiming to optimize their innovation funding strategies. While internal management offers benefits like cost savings and control, it also presents challenges such as regulatory complexity and resource allocation. Companies should conduct a thorough assessment of their specific circumstances and strategic goals to determine the most suitable approach for managing SR&ED claims.
At GrowWise, we offer free SR&ED consultations, so if you are on the fence, let’s connect and discuss your specific situation in more detail to decide what is best for you. Book a call here: https://growwise.ai/intro/
