A good case for tax relief

It has become a familiar sight around the world’s airports and railway stations – excited children wheeling or riding colourful, characterful suitcases.  The success of Rob Law’s Trunki is one of the great stories of  how innovative design and branding has created a new market.

And while the cheerful Trunki will always be associated with Rob Law’s Bristol-based company Magmatic – rather as the iPhone is associated with Apple – this is not a one-hit business. Its strategy is to become the world’s leading producer of children’s travel products.

That requires a capacity for relentless innovation but also being fiercely vigilant in defending and protecting its ideas.

While all its fabric products – such as the ‘dry bag’ Paddlepak that looks like a fish – are made in Asia, Magmatic’s moulded plastic products – such as the Trunki – are now made in the UK. Some of its products can take a surprising amount of time to get right; the Toddlepak, a safety rein for children, required 300 prototypes before it got to market.

Right now, the company is gearing up for a major new launch in November. It will represent another milestone on Law’s personal journey to reshore manufacturing. It was in 2012 when Law first started to reshore the manufacture of Trunkis.

Rob Law: "The Patent Box is a great way for the government to motivate companies to stay in the UK and not to offshore for tax planning"

Rob Law: “The Patent Box is a great way for the government to motivate companies to stay in the UK and not to offshore for tax planning”

The company acquired a plastics moulding factory in Plymouth to build up its in-house capacity and expertise; the factory is now set to use new printing technologies to ensure the designs on each suitcase can’t be scratched or removed. “It requires real precision to get it right each time,” says Law, “and that puts us ahead of our competitors.”

Magmatic has become a beneficiary of the Patent Box. Find out more about how this scheme allows companies to apply a lower rate of corporation tax to profits earned from its patents.

Under the scheme, the income from any innovation patented in the UK is taxed at a reduced corporate tax rate. The relief is being phased in over a four-year period from April 2013. Once the full benefit of the Patent Box is in effect – as from April 2017 – it means that a ten per cent rate of corporation tax will be applied to such profits.

“We were very pleased to see this announced,” he says. “We have always applied for patents across all our products to build up our IP portfolio – it’s one of the most valuable asset we have. So, as all our products carry patents, profits relating from any of our product sales benefit from the new tax legislation. And that enables us to re-invest more of our earnings back into the business.

“The Patent Box is a great way for the government to motivate companies to stay in the UK and not to offshore for tax planning. And it does reward inventive companies, which can only be a good thing.”

He adds that the process of application for the Patent Box has been really clear and simple.

Slightly more laborious, but also valuable to secure, are the R&D tax credits that Magmatic has gained for the product development of its BoostAPak children’s car seat that doubles as a backpack, and for the re-engineered version of its Trunki suitcases that removed all metal components to make it easier to manufacture in UK and to recycle. “You have to work out what the tax relief is applicable for, so it is more complicated, but you can get accountants to help you,” Law says.

The main growth of Magmatic’s business is being driven by Asia and North America. Find out more about how UKTI can help your business ensure its success in international markets.

In the USA, Trunki LLC has been trading since mid 2014 and is the company’s largest market by volume outside of the UK. China is another booming market. When Law recently attended a press conference at a trade show in the country, he asked a packed room how many of the delegates had heard of Trunki – and all of their hands went up.

Law is understandably confident. “We are fully in our growth phase,” he says. “Following the investment last year from the Business Growth Fund, we are developing new products, expanding our markets, and growing the team quite significantly. For some years, I carried the full weight of the business on my shoulders; with a stronger board that is now a shared burden.”

The world’s children can expect more fun on their travels in the years to come.