Innovation can call for investment and mean incurring extra costs, but Catax can help you recover a large part of those through valuable tax reliefs.
Altrincham’s tax relief specialists, Catax, were founded ten years ago with an even narrower specialism. They worked exclusively on helping people reclaim Capital Allowances.
Group managing director Paul Johnson tells BQ: “Capital Allowances are part of Government legislation, and if you own the freehold of a property, you’re allowed to claim allowances for embedded items – things like lighting, heating, data cables, going back to when the property was first purchased. You can only claim once, to keep it clean, unless you do a refurbishment or an extension.
“Whilst accountants will typically be able to claim some allowances on everyday equipment purchases, Capital Allowances on the embedded plant & machinery within a property or build stage are much more specialised – you must be able to look at a radiator that might have been installed in 2004, sockets from 1998, all with different values.”
And with a matrix of values going back 40 years or more – “because properties could easily have been in families or businesses since then” – Catax are uniquely qualified to help capitalise on this allowance. That uniqueness is underpinned by their impressive client numbers. “We’ve serviced something in the region of 12,000 clients in that time,” Paul says. “Then, about three and a half years ago, we decided to diversify into research and development, which offers tax relief – or tax credits. They are effectively the same, except the benefit is received differently.”
The R&D legislation is designed to incentivise companies who are being innovative; who are developing new or improving existing products, processes, services, devices, materials or knowledge in their sector. For example – it can be anything from creating new menus for a restaurant, developing software systems for enhancing service delivery or new packaging to reduce waste and increase the shelf life of products, so it’s not just the high-tech end of the market.
This really is the hidden value in your business. Research and Development Tax Credits are a UK tax incentive designed to encourage companies to invest in R&D and innovation. Companies can significantly reduce their tax bill or claim payable cash credits as a proportion of their R&D expenditure and this can run into hundreds of thousands of pounds.
“It’s had an enormous push from the government, with billions of pounds of additional support announced in recent budgets,” Paul says. “To make sure that the UK remains competitive, the tax relief is offered to any company that’s investing in subcontractors or their own employees, and it can include costs of materials and project fulfilment – including trial and error.
“The project doesn’t have to be successful. If it takes you ten goes to do something, and the tenth one is successful, you can still reclaim tax credits on all the time, effort and supplies you used for the first nine.”
It’s important to remember the bigger picture, when it comes to supporting businesses by helping them reclaim the full amounts that they’re entitled to. “The government knows that if they support companies by providing this tax relief, they’ll get a great return on it – turnover will increase because the R&D will ultimately be successful, they’ll employ more people who’ll pay PAYE and National Insurance, and spend their money on products on which they’ll pay VAT. So, for them, it’s a 3x, 4x, maybe even 5x return on their investment in British industry.”
And it doesn’t have to be a big business, like AstraZeneca who’ll obviously be using this scheme. This is for everyone. “We primarily deal with SMEs,” Paul says. “So, if someone is trying to make a new garden shed that is guaranteed not to rot, and they’ve imported timber from all over Europe trying to make it happen, we can help. Ideally, we’re looking for a £50,000 minimum spend, but obviously some big businesses are spending many times that.”
So that’s Catax. They’re keeping it simple, though in very complex environments, and when they say that they specialise in these tax reliefs, they’re not joking. Innovators themselves, they’ve used all the knowledge and experience built up over the thousands of cases they’ve supported so far.
“Accountants who typically look after SMEs have a broad range of services, so they’ll do payroll, VAT, statutory accounts, self-assessment…we compliment the work that accountants do, whether they’re in-house and employed, or contracted in.
“We have a benefit calculator, containing more than 50,000 lines of data looking at costs by sector,” Paul says, illustrating the way they use data to the advantage of their client. “If someone is creating painted textiles, or a new type of printing on textiles, we could go to them and tell them the typical apportionments they can claim based on the data we have from our existing clients.
“So, we can sit with them and identify for them the 16 – for example – areas that they can claim for. If they tell me ‘Jim has worked on it for three days of his week’, we can potentially claim not just for him, but for the receptionist who had to check and sign for the orders, for the security man who must do an extra 20 minutes per night walking around and checking all the extra stock they hold.” And that’s an excellent example of the holistic view of business that makes them so successful.
“We hold the hand of our clients; we show them the opportunity, and we’re very strict about complying with the legislation, but this data really is what sets us apart from other advisers, as it is based on the thousands of businesses we’ve already worked with.”
Complimenting the established services, Catax have another trick hidden up their sleeves – or in this case, in a box. “We have just soft-launched the patent box,” Paul says, citing another government legislation whereby “if a company has obtained a patent for an item or process, they’re able to claim a reduction in their corporation tax on the profit that’s made from that item or process, or the subsequent saleable product it’s used to create.
“So if you make and patent a new spark plug, you can claim for the profit on the engine or even the entire car in certain circumstances. The patented component must provide a material benefit to the item which is produced. The beauty of the patent box is that you must have done some R&D to create a patent – so we can provide you with both services.”
The Catax client base is building rapidly, but the team have built a business that can scale alongside that. “We’ve had approximately 3,000 successful cases and the business is growing rapidly. Catax has gone from three people initially, up towards 90 staff. The R&D scheme has created a lot of sole traders having a go at it – it’s very popular – but even our biggest competitors only have a small number of people dedicated to this, whereas we specialise in and invest considerable resources into this relief.”
And they’re focused on the future: “It’s a young company; we employ postgrads who come in and are promoted through the business. We’ve just recently taken on an operations director, Alex Lundy and we’re gearing up for the future. It’s exciting times for us.
“Our head office is in Altrincham, South Manchester. We have an office in London, a satellite in Carlisle, and we have plans in the coming months for Edinburgh. Our business development managers travel nationally, speaking with businesses across multiple industries, helping clients uncover their hidden tax relief.” And the world is their oyster.
Paul worked alongside the team on the process of whittling down all the entrants to the final list of 100 innovators in Greater Manchester. “When we reviewed the Innovation100 entrants with the rest of the team, it was exciting. Manchester has a great history of innovation; there are so many great stories that have gone global from Manchester, and with the technology parks and the growth hub’s support there are loads of start-ups.
“I think we are inherently innovative in the UK. We have some of the world’s greatest scientists and engineers, F1, a lot of chemical and medical advances, and even in the technology world, Silicon Valley has a lot of Brits.
“It’s heart-warming that we’ve got so much of that going on in Greater Manchester.”
And they’re keeping that heritage particularly close to their hearts, taking on one of the project leaders and a scientist who was involved in the Graphene project in Manchester. Paul joined the firm in October 2016. “Originally, I started off training to be an accountant, and I fell into the car parking world.” He spent 26 years working for NCP, a business he cites as being truly incredible. “I was originally on the operations side, becoming Operations Director and creating its first joint venture – the only joint venture of its kind, with Manchester City Council, where we took on all their car parks and staff, and built a state of the art digital control room which opened in 2000.
“I was responsible for running all the sales and for their season tickets, so around £40m of turnover alongside the training of all operations staff about the commerciality of the car parking industry. Because we were there to make money, like every business, we worked with hotels, restaurants, nightclubs, any businesses who wanted to increase footfall, where we could do deals to provide their car parking throughout the UK.
“Whilst operational,” he concedes, “I’ve always been very much focussed on the P&L and looking at where a business can innovate and create value.”
So, his parting message is one of support: “We can help all these companies; you don’t have to be making profit, or even have a turnover. Whether you used your own money, or borrowed from elsewhere, you can still claim money on R&D – the money that you get back can be reinvested in further R&D in your business!
And the future for Catax, and for Paul? “We’re very ambitious about our growth, heavily investing in our people, offering training and support for everybody – and I love it, I absolutely love it.”