Capital investment in software and the new tax super-deduction

Capital investment in software and enterprise resource planning (ERP) technology can be extremely costly for businesses. However, the new tax super-deduction could see real benefits to businesses about to embark on a finance transformation journey.

Unveiled in Rishi Sunak's March Budget to aid the UK's recovery from coronavirus (COVID-19), there is now an opportunity for capital investment on intangible fixed assets relating to software and ERP technology to qualify for the super-deduction.

This could be a huge benefit to businesses currently incurring capital spend on new ERP technology, or planning to in the next few years.

ERP technology which would normally attract relief at 18% could potentially see that rate increased to 130%. This translates to a 25% reduction in the cost of that software.
The deduction applies to new contracts entered into after 3 March 2021 where expenditure is incurred between 1 April 2021 and 31 March 2023.

So what might qualify?

• Capital expenditure on ERP or other software (purchased from a third party vendor or developed internally)
• External consultancy fees relating to the capital expenditure
• Capitalised staff costs relating to relevant projects

Understanding the details is crucial to making a successful application. The application of the relief is complex and depends on a number of determining factors including timing and phasing of contracts and analysis of revenue expenditure against capital.

There's also a need to consider interaction with other incentives and allowances - such as R&D credits, patent box, tax loss rules - and the organisation's overall tax strategy. That said, there’s plenty of help on hand, and you can read about super-deduction and intangibles and watch our video explaining the rules in more detail.

In an earlier blog we talked about the benefits of using a Tax Business Integrator to improve the quality and efficiency of a business’s tax function. It feels only right to make the best use of the incentives available via this tax super-deduction so businesses stand to achieve an improved tax function in a tax efficient manner. Get in touch if you’d like to understand how to achieve this.