Eighteen months ago, Liam Torrance, CEO of the Torrance Group wasn’t aware that two of his companies were eligible to claim HMRCs R&D Tax Credits. By July of this year the two Group companies had received in excess of £170,000 from HMRC.
A chance meeting with Randd UK Ltd at an engineering exhibition opened their eyes to the possibilities. After evaluating a number of similar companies, they appointed Randd to process their first claim for one of their companies. A year later, after the success of the first claim, the company asked Randd to process claims on behalf of two Group companies.
Torrance Group has two engineering companies: Euro Precision Ltd supplies small precision components to the Aerospace, Defence, Oil and Gas, Renewable, Medical and Motorsport Industries; while Technocut specialises in the design and manufacture of specialist components and fabrications across a wide range of industrial uses.
“We specialise in developing and prototyping new products, working closely with our customers as they develop new product.”
The Group works with a large number of blue chip clients, helping them to develop new products. An issue they often face is that once a product is designed, it may not be physically possible to machine it. They therefore work very closely with their customers to find more cost-effective and better ways to develop, machine and manufacture products.
“The entire development process can be time-consuming and costly, requiring as much as four or five revisions to the product before it works.”
Because the Torrance Group are developing products for so many companies and constantly innovating and developing their processes, they invariably find that they had previously resolved a problem a customer has. This has helped them to save months of development work because they understand that process.
Precision engineering companies need to spend a lot of money upfront on R&D, without knowing they are going to get a return. With an estimated 50-70% of products in development not going into production, managing cash flow can become a significant problem.
“It is a very difficult to make any money because prototyping runs away with time and machine time.”
Though the Torrance Group are a prime candidate to claim R&D tax credits from HMRC, they didn’t know they were. They knew various reliefs were available to companies, but they weren’t aware to what degree they could claim, or whether they qualified. They hadn’t pursued claiming R&D tax credits as their accountants had said that they doubted they would be successful. And, that even if they were, the fees would probably be more than the claim and not worthwhile.
“Randd confirmed after their very first interview with us, what we could and couldn’t claim. They are very knowledgeable in this area.”
Having evaluated a number of companies, Torrance Group selected Randd to help them put in a claim because of the work they had already done and what they had achieved in the engineering and manufacturing sector. It proved to be a good decision.
“There are a lot of companies who just want to make a quick buck. With Randd that wasn’t the case. Randd have a lot of experience in a lot of different industries. It made a difference that they really understood what we were talking about, without us having to explain to them. They are really quite technical.”
Randd visited the two Torrance Group companies in Scotland to gain an understanding of the businesses and compiled two separate technical reports and financial schedules, presenting the information HMRC was interested in.
“I believe you need to get a specialist in – people who know exactly what they are doing – the right people for the right job.”
From the client perspective there was very little to do. Liam Torrance estimates he spent no more than two days of his own time meeting with Randd and providing input to the process. In a short space of time, Randd created all the documentation required and put in a claim. Within five weeks of their first meeting with Randd, the two Torrance Group companies were paid out without a query.
“We sailed through the process. You can’t get much better than that – it was a very quick claim. The surprise is the amount we got – it was more than we expected.”
Liam Torrance is quite happy to mention figures. Their first claim in 2011, netted Technocut £36,000. In 2012, the payment received for Technocut was close on £25,000, and just short of £113,000 for Euro Precision.
“Yes, we did the R&D work, but we were doing it anyway. The R&D claim was a bonus on top. I didn’t think we’d get anything for tax.”
It has been very positive for the business too. Euro Precision, in its third year of trading, has gone from a start-up to a high-growth company. Cashflow had been very difficult for the company. The first two years they made a loss and hoped to break even in the third year. But the claim has put the company into profit. This has pleased the banks and has made a lot of people very happy.
“The benefits to our business are in tax and profitability. It has put us into profit. It has had another knock-on affect, it improved our balance sheet and that has helped with bank funding.”
Liam Torrance feels the R&D Tax Credits scheme is excellent because it encourages development of products in the country and encourages companies to do development work. It not only works for business, it works for the government as well.
The scheme has certainly encouraged Torrance Group to do more research and development work. They anticipate they will be successful in making claims for years to come, and are allowing a bit more in their R&D budget to do R&D. They are also more keenly focused on work that will lead to new breakthrough innovations.
“Randd have done an excellent job for us. There is no doubt about it. A few meetings, narratives created, and questions that I could answer off the top of head – nothing difficult. There is nothing to lose here, because if you’re not successful there’s no fee. I’ve recommended Randd to a few companies already.”