Tucked away in a Yorkshire industrial estate, Rack Systems makes metal components and screens for office and educational furniture. Since it was established in 1989, it has developed a nationwide customer base and an extensive portfolio of products including flip-top tables, height adjustable desks and contemporary office screens.
Are manufacturing companies engaged in R&D?
When the government's R&D tax credit incentive was first mentioned to Managing Director, Richard Field, by his auditors, he dismissed it as not being applicable to either his company or its work. His view was that R&D is something done by scientists in white coats, not manufacturing companies.
Richard then had a pre-year-end meeting with his accountant, who mentioned he'd been introduced to R&D tax credit specialists, PfP R&D. After talking to them, he was absolutely certain Rack Systems could qualify for the government’s R&D tax credit incentives. He urged Richard to reconsider – especially as the window for making his 2014 claim was fast approaching.
Finding himself in the South West, Richard reluctantly decided to call into their offices in Bristol to find out more. But says: "If I'm honest, I wasn't expecting much."
Richard met with a director and a tax manager, and discussed his business for almost an hour. The last ten minutes of that conversation were a light-bulb moment for Richard. The final question put to him was, "Do you innovate?" He responded by saying: "Yes, absolutely, we do innovate." He explains that a lot of Rack System's work involves improving its products and finding more efficient manufacturing processes. He said: "Once the language changed, I realised R&D tax credits were applicable to us."
A quick and simple process
The R&D tax credit incentive allows companies to claim an enhanced deduction for its R&D expenditure for the last two accounting periods. Richard's first meeting with the team was on 12 December 2016 – and his company had a 31 December year-end. So if a claim wasn't put together by the time Rack Systems closed for Christmas on 23 December 2016, the amount that could be claimed for 2014 would be lost.
The team sped into action. After meeting with Richard and conversations with the company's Design Manager and their accounts department, they quickly got to grips with the innovative work being done. The information needed to submit a claim to HMRC was collated, analysed and then submitted before the deadline. For the first claim, many of the percentages applied had to be determined by Richard based on knowledge of the type of work each employee did at the time, but future claims will be even easier to put together as Rack Systems are now keeping clear records of time spent on innovation projects.
A business boost
Although not expecting much initially, Richard was delighted that his R&D tax credit claim resulted in a financial boost of over £180,000 for his company. While that's a big enough incentive for any company, the claim has had even more far reaching benefits for Rack Systems.
Richard says: "We're currently engaged in building another factory, so receiving an unexpected cash windfall is obviously very useful. Also just knowing that you're going to get something back, you can be a little more generous in the process of development going forward. If it works – or even if it doesn't – being able to offset some of your expenditure by R&D tax credits is very helpful and allows you to take a few more risks in the pursuit of innovation."
Maybe your work is R&D too?
Richard says he'd encourage any business to find out if they're eligible to make an R&D tax credit claim. He commented: "It's absolutely worthwhile and what have you got to lose? It took a meeting to change our mindset and help us understand we are innovators. For companies like us, it's great to know this government incentive recognises the work we do and is truly supporting manufacturing in the UK."