How a construction company used R&D to enhance its cash flow
The construction and civil engineering sectors comprise a huge variety of specialist companies with most innovating on a regular basis, even if they don’t realise it. Each construction site is different and presents its own, unique challenges with technical problem-solving necessary on a daily basis.
Where a problem cannot be resolved using a standard practice or if there is no standard practice, it will frequently be necessary to innovate. That's where R&D comes in.
Innovation means carrying out R&D activity that leads to new or improved solutions to a problem. Some attempts at problem-solving are successful and others fail... but all attract R&D tax relief!
Specialist London and southeast fit-out contractor BW Workplace is forecasting a return to a strong financial performance next year after sliding into the red in 2021.
The firm saw revenue fall for a second year last year due to the impact of the pandemic on London fit-out work.
Turnover slumped 20% to £145m, leading to a pre-tax loss of £177,000.
Thanks to a back dated R&D tax credit of £5.2m that BW made, the company reported an after tax profit of £5m.
Over the year average monthly staff levels at the firm, which specialises in projects from £4m to £40m, dropped 13% to around 180.
Finance director Andrew Bradley said that despite the slowdown, BW had maintained record cash levels while ensuring it managed the payment cycle effectively to the supply chain.
The cash balance at the end of the year totalled just under £18m down from £20m previously.
He added: “BW is well placed to trade well and capitalise on a strong market, currently we have £180m of secured turnover for 2022.”
The firm last week announced a new joint venture with laboratory refurb specialist Bulb Laboratories to jointly deliver high-value research, innovation and manufacturing facilities in the science and technology sector.
The construction industry is vital to the UK economy, representing 9% of the country's GDP. In recent years, the sector has seen a boom in R&D activity, with the number of construction companies claiming R&D tax credits rising by more than 600%.
Number of R&D tax credit claims by industry sector, 2019-20
However, there is still room for improvement, as only 1% of the industry is currently claiming R&D tax credits. With the inflation of costs, more and more construction companies are utilising the RD tax credit scheme to offset these costs.
This is a positive trend that is sure to continue in the years to come.