FB21 provides the opportunity to claim a 130 percent super-deduction for investments in computer software, including internally developed software.
The super-deduction included in Finance Bill 2021 is designed to stimulate new capital investment into the UK economy, including a 130 percent first year allowance on most new plant and machinery. This relief applies equally to computer software as it does to physical assets, including costs accounted for as intangible fixed assets. This will deliver an absolute benefit of 5.7 percent applying the 19 percent corporate tax rate (i.e. enhanced 30 percent relief x 19 percent) in addition to cash flow benefits by accelerating tax relief. The super-deduction adds to tax reliefs already available on software, including research and development (R&D) tax incentives, and the interaction of these reliefs should be considered to ensure correct and optimised relief is obtained across any software expenditure incurred.
The key criteria for the super-deduction are:
The expenditure must be capital in nature for tax purposes.
The measure will be most relevant to corporations whose tax profile is such that a super-deduction is beneficial in reducing cash tax payable. In which case, any business incurring intangible fixed asset expenditure on software or IT projects should consider this relief.
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