Comparing consultants–which is the best for your company?
This seems to be the eternal question–how much will it cost me to outsource my claim preparation through a SR&ED consultant? Short of inviting a slew of highly aggressive consultants into your office to pitch their services, it can be difficult to know what the “going rates” for SR&ED claim prep are in contingency-based arrangements.
Thankfully, we’ve been around long enough to establish a fairly solid idea about the rates charged by various SR&ED consultants, based on their size, level of expertise, etc. Here is a rundown on rates for some of the major accounting firms, smaller consulting firms, and one-person shops, including the percentage of your total SR&ED tax incentive refund that will likely have to be used to cover their costs.
“Big 4” SR&ED Consultants (15-25%)
The Big Four are the four largest international professional services networks in accountancy and professional services, which handle the vast majority of audits for publicly traded companies as well as many private companies, creating an oligopoly in auditing large companies. 1
Positive: Due to the size of the client base, you can be assured that they have handled a large variety of claims of varying sizes and complexities. Although the main person doing your work will likely be an “associate”, rather than a partner, some groups offer discounted rates (10%) when your file is assigned to a junior individual (although this is not always the case). If you have all your work done with a single group, it can potentially be more convenient.
Cautionary: The internal SR&ED practices in these companies are generally quite new and are often treated as “add on” services to increase their bottom line. With a large firm comes considerable overhead requirements; consequently, their consultants have to recover a significant amount in order to cover costs. This puts enormous pressure on the consultants to get work done quickly, which can potentially mean less time on your file. Also, not all departments communicate effectively– make sure they know who is working on what.
Additional Services: These groups can often package your personal/corporate taxes, audits, business consulting, and more. Be sure to ask for a discount if you are using multiple services. Also, make sure you check how often the managers/partners will work on your file.
Education/Training: When these are offered, it is usually a free “information session” in which they sell their services.
Hourly Rates: Available, but expensive. $250-750/hr.
“Boutique” Accounting Firms (10-25%)
Positive: These groups were founded on solid accounting practices, usually combined with a niche offering. Mid-range (or “boutique”) accounting firms have lower overhead costs and these savings are often transferred to your organization. They can be highly skilled accountants that think creatively on behalf of the client.
Cautionary: At these rates, the firm may only review your claim and integrate your notes and may not provide a dedicated SR&ED professional. SR&ED services are sometimes an afterthought and you will need to be proactive in bringing this tax credit to their attention. Unless they are partnered with a “Boutique SR&ED Firm” they may only have only a single individual covering a wide range of topics, generally with no other in-house personnel to debate the finer details of your company’s SR&ED claim. Further, this individual may not be a strong writer of technical narratives. Be sure to ask about the communication background of their SR&ED individual.
Additional Services: Boutique accounting firms can bundle your tax returns with your SR&ED claim preparation. Be sure to ask for a discount if this is the case.
Education/Training: These services are generally not provided.
Hourly Rates: Available upon request, but often $275/hr+up.
Dedicated SR&ED “Boutiques” (20-30%)
Positive: As SR&ED is their primary focus, they will definitely have specialized SR&ED services. They normally have specialists in most areas of technology and accountants with specialized training, as well as “dual” individuals who can oversee both sides of the project. It is in their best interests that they ensure that the appropriate individual(s) is/are assigned to your file, as it is their sole means of generating revenue.
Cautionary: These “boutique”-style groups fall into two main categories: those that have salaried employees, and those that rely solely on contractors. There can be arguments made for both, but be aware that some groups using the contracting method outsource the writing of your technical narrative to low-cost providers for minimal fees (less than $250 per 1400 words). Under this method, groups can be tempted to use a “kitchen sink” approach i.e., a technical narrative that includes ineligible expenses/activities. Arguments can also be made that individuals are not as “invested” when they have a fixed vs. claim-by-claim salary. Ultimately, technical narratives are at the heart of every SR&ED claim. It is vital that you ask the right questions (see below) to help guarantee that only eligible expenses are included in your SR&ED claim.
Additional Services: Most offer additional tax-credit services and can help ensure you leverage multiple programs effectively (i.e., OIDMTC).
Education Training: Many do not offer education or training services; however, some offer review services and can give you impartial feedback. Be sure to ask!
Hourly Rates: Most do not have hourly payment structures, and those that do range from $75-450/hr.
Individual SR&ED Consultants (10-25%)
There are many individual consultants that offer SR&ED services–the “exploding cottage industry of consultants” referred to in the Globe and Mail. 2
Positive: The benefit of using a small, one-man shop is that there is the least overhead. This means the savings in consulting costs are transferred directly to you and your company.
Cautionary: Similar to mid-range accounting firms, the downside is that only having a single SR&ED consultant to cover off many different types of claims–software, engineering, food sciences, etc.–means the consultant may not have expertise in all areas. Further, as individual consultancy is the easiest to set up, individuals who may not be fully qualified will try their hand at SR&ED claim preparation after having read about the success of others.
Additional Services: As these individuals generally have engineering or business backgrounds, they often offer additional consulting services.
Education/Training: Many offer services such as education, training, and best practices reviews that are not offered elsewhere. Be sure to ask.
Hourly Rates: Depends on the individual. Generally not available.
The Business Development Bank of Canada (BDC) no longer offers claim preparation services.
The following information is included for historical accuracy:
This last category is our personal favourite. The Business Development Bank of Canada (BDC) is a crown corporation and financial institution wholly owned by the Government of Canada. Similar to other government groups, BDC prepares SR&ED claims.
Positive: This is a reputable group of individuals who provide consulting services to small organizations. As a Crown Corporation, they are required to act ethically and work in the best interests of the entrepreneur.
Cautionary: BDC’s fees need to be paid in advance, putting you in a vulnerable position if your claim is delayed. There is no irony lost in noting that, by using a Crown Corporation for SR&ED claim preparation, you’re paying a government group in order to access government tax credits.
Additional Services: The BDC has a wide range of services, from equity investments through loans. Note: it is not a requirement that you use their SR&ED services if you are using their other services (i.e., Expansion Loans).
Education/Training: Generally not offered.
Hourly Rates: N/A
10 Key Questions to Ask
Here’s a handy list of questions to ask your potential SR&ED claim preparer/SR&ED claim preparation company:
- Who will actually be working on your file? What is their level of experience?
- How many SR&ED claims do you usually file per year? How many are selected for review? How many are adjusted and by how much? (This will indicate if they include non-eligible work, but also if they have hit stumbling blocks with RTAs–investigate carefully).
- What is your area of specialty and experience?
- Are your SR&ED claim preparers employees, contractors, or are they under a revenue-sharing arrangement? Is there profit sharing in place?
- What additional services (beyond basic technical narrative/financial information) are provided free of charge? Education and training? Assessment of documentation & best practices suggestions?
- Is your organization registered with any external governing bodies, should problems arise? How do you resolve conflict?
- How do you ensure ongoing SR&ED claim preparation training? What do you do to stay on top of policy changes?
- When quoting your SR&ED claim submission “success” rate, how exactly do you define success i.e. accepted-as-filed, accepted with adjustments, etc.?
- What is your tolerance for claim risk? Do you push the envelope or err on the side of caution? (Note: This should fit with your personal style.)
- What is your client retention rate? Do you rely on multi-year contracts, or do groups voluntarily return year after year?
If you choose to outsource your SR&ED claim preparation, consider the role of the external organization. Are they adding value to the process by eliminating the need for internal resources and bringing in external experts? Accordingly, it’s important to select a reputable and reliable SR&ED consultant–not a company, but the individual consultant–as, at the end of the day, the bulk of your SR&ED claim preparation will be the responsibility of one person. This decision should not be taken lightly, even if it is under a “no win, no fee” arrangement. Mistakes in this area can cost your organizations tens or even hundreds of thousands of dollars. Further to this, you will be responsible for the content of the submission and if it is considered fraudulent the CRA will a) red flag you for more rigorous reviews in the future, and b) consider pressing charges, as in CDD-REM Process, Vacuum Technology Corp. v. The Queen 2000 TCC. 3
In an ideal world, all SR&ED consultants would be forthcoming and highly transparent in their claim preparation practices and service rates. While there are many consultants/firms who do uphold ethical claiming practices, do your research to ensure that you protect your investments by choosing claim preparers with a high degree of integrity. Keep the above comparisons and questions in mind when considering the right SR&ED consultant for your organization.
Finally, use the following quote as the guiding criteria for the level of service you should always expect from your claim preparer:
It is our job as a trusted service provider to claim within the parameters of the SR&ED legislation. Those attempting to over claim by throwing in everything but the kitchen sink are simply looking for short-term gains and may be potentially exposing their client to a long arduous audit should these dubious tactics be employed. An ethical service provider is one that adds value to a clients workflow process, works with the client by meeting throughout the year to document eligible activity and will likely develop a long-term partnership with their client as a result of excellent service. 4
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- Big Four (audit firms). (2011, December 21.) Retrieved January 6, 2012 from Wikipedia: http://en.wikipedia.org/wiki/Big_Four_(audit_firms. ↩
- McKenna, Barrie. (2011, March 11). Flawed R&D scheme costs taxpayers millions. The Globe & Mail. Retrieved from http://www.theglobeandmail.com/report-on-business/flawed-rd-scheme-costs-taxpayers-billions/article1939418/ ↩
- (2000, November 28) CDD-REM Process, Vacuum Technology Corp. v. The Queen, 2000, TCC. Tax Court of Canada. Retrieved from: http://decision.tcc-cci.gc.ca/en/2000/2000tcc19994891/2000tcc19994891.html ↩
- C. Bodnar. (2011, March 28) Filtering Out the Good from the Bad When Filing SR&ED. (Web log). Retrieved from http://rdpassociates.com/blog/2011/03/filtering-out-the-good-from-the-bad-when-filing-sred/ ↩