By Phil Baker - Head of Commercial Finance, Synapse360
The Super Deduction Tax
As part of the 2021 Budget, the UK Government recently announced a new set of capital allowance reliefs which include a 130% “super-deduction” relief for expenditure on certain new business assets. These allowances are designed to encourage businesses to invest, thereby stimulating economic recovery as we move out of the “lockdown” phase of the Covid-19 Pandemic.
Business leaders should fully understand these measures, and prepare investment plans to benefit whilst they are available. Investment in IT infrastructure qualifies for the super-deduction tax relief, which could enable or entice businesses to bring forward transformation projects and other productivity-enhancing initiatives which may have been planned for the future – or efficiency initiatives which haven’t been planned at all until now.
The Key Points
The super-deduction comes into effect from 1st April 2021 and lasts until 31st March 2023, for expenditure on all contracts entered into from 3 March 2021.
The super-deduction offers a temporarily-boosted 130% first-year allowance for main rate assets (ordinarily 18% annual relief), and a 50% first-year allowance for special rate assets (ordinarily 6% annual relief).
Most IT Infrastructure spend would be expected to qualify for the main rate of capital allowances.
There is no upper limit applied to the level of expenditure that benefits from the relief.
How Should My Business React?
Review current investment plans, and understand the potential cashflow benefits for each proposed investment.
Consider fast-tracking planned investment to benefit from the 2-year window for which the super-deduction is applicable.
Circle back on plans and projects that may have been cancelled or postponed as a result of the pandemic.
Think about whether your current investment plans are suitable and futureproof for a high-performing, efficient post-pandemic business
Model the tax benefit alongside your wider tax profile – engaging a respected tax advisor is likely to return a strong ROI where material investment is planned.
Manage Your Risks and Safeguard Your Claims
Ensure new assets and associated contractual arrangements comply with the super-deduction rules
Don’t fall foul of anti-avoidance rules, which prevent relief for artificial arrangements.
But maximise your legitimate claim – don’t forget to include all allowable associated costs.
Even where large projects have already started before 3 March 2021 – certain sub-contracts or later phases of work may fall within the rules. Check your in-flight projects and discuss with your tax advisor where necessary.
Make sure your financial systems and processes are capable of assessing all of these points; as business leaders, you will want cast-iron assurances and confidence that your relief claims are robust enough to endure any challenge from HMRC.
Get in touch with Synapse
Our Salesforce have been fully briefed on the commercial considerations behind the super-deduction, and how we can structure a commercial deal to suit your business goals and benefit from the relief.
We’d be happy to discuss your IT investment plans and would relish the opportunity of convincing you to join our loyal customer base.
Worried about the up-front capital expenditure? Not a problem – read our whitepaper on “Subscription Models; Are businesses behind the curve of changing consumer spending habits?” for information as to how you could have the business transformation you need today, and pay for it tomorrow.