HMRC has introduced a new tax break designed to drive business spending and investment. The Capital Allowances ‘super deduction’ allows organisations to save 130% of the tax on new PCs and IT hardware.
What are Capital Allowances?
Capital Allowances allow organisations to write off the cost of select assets against their taxable income. Businesses deduct allowances when calculating their taxable profits as a way of deducting depreciation.
There are two main types of capital allowances – Structures and Buildings Allowances (covering construction and renovation of buildings), and Writing Down Allowances (for plant and machinery).
This latter saving can include business IT equipment such as IT infrastructure hardware, servers and PCs.
Capital Allowances deductions are fairly complicated to calculate. Prior to the super deduction, it was done in the following way:
((Taxable profits + Depreciation of equipment purchased) – (Purchase price of goods)) * Corporation tax @ 19% = Saving
However, the change means that now even more can be saved.
So What Exactly Can I Save?
HMRC gives the following example for the savings possible under the super deduction scheme:
- A company spending £1m of qualifying expenditure decides to claim the super-deduction
- Spending £1m on qualifying investments will mean the company can deduct £1.3m (130% of the initial investment) on its taxable profits
- Deducting £1.3m from taxable profits will save the company up to 19% of that – or £247,000 – on its corporation tax bill.
Such figures are, of course, more than the average organisation is likely to spend. A more practical example would be that an organisation spending £5,000 on a new server could reclaim around £1,200 in tax.
Unfortunately, deductions cannot be applied to software.
How Long Do I Have To Claim IT Capital Allowances?
Organisations have until 31 March 2023 to access the Super Deduction. However, with the current supply issues and delays in chip manufacturing relating to COVID 19, it’s advised to start investigating savings now.
While it’s advised organisations speak to their accountants about the finer details of Capital Allowances, Akita’s IT hardware team can assist organisations with quoting and sourcing the IT equipment.
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