In the recent Budget, Chancellor Rishi Sunak announced a new Super Deduction Tax Relief of 130%, available to businesses incurring expenditure on qualifying hardware and software. The scheme covers expenditure between 1 April 2021 and 31 March 2023 and is available to profitable incorporated businesses, as it offers tax relief against corporation tax.
For the two-year period, this will be the single biggest business tax cut in modern British history.
The Super Deduction Tax Relief Scheme enables companies to claim capital allowances of 130% of the cost of all qualifying expenditure, enabling a £24.70 reduction in corporation tax for every £100 invested on qualifying expenditure.
The HMRC has said IT equipment, like computer hardware and software, is within scope of the Super Deduction Tax Relief Scheme – if its qualifying conditions are met. For instance, the equipment must be new and unused. In subscription-based purchases, HMRC said the super-deduction would apply based on the contractual terms. For example, software sold on a monthly subscription will not qualify. However, to overcome this, you can look at alternative ways to finance the purchase, like hire-purchase, and still pay in the SaaS model.
A company wishes to purchase a new hardware at a cost of £50,000.
They purchase this hardware within the 2 year period (April 1st 2021 – 2023).
At the end of their financial year, they have made a profit of £100,000.
The super-deduction of 130% (£65,000) is applied to this profit so that their profit before tax is now £35,000.
They pay corporation tax at 19% on this, so have a corporation tax bill of just £6,650 as opposed to £19,000.
It is still possible to have your cake and eat it by using financing options. You can make these investments while still enjoying the benefits of a healthy cash flow. Ultimately, you will need to own the assets, so leasing is out but hire-purchase or a loan would enable you to still qualify for the Super Deduction Tax Relief Scheme.
Speak to IQ Finance to find out how you can arrange financing for your hardware and software to qualify for the Super Deduction Tax Relief benefit.