Does the UK’s super-deduction tax scheme favour on-premise infrastructure investments in the short-term?
Firstly, I’d like to clarify that I’m not a tax-expert but instead focus on IT Cost Management (aka Technology Business Management).
Secondly, I know this is quite a contrarian recommendation to be making in today’s environment when no matter what the question – the answer is always ‘the Cloud’, but here you go…
UK-based companies are possibly better off investing in on-premise infrastructure than IaaS-type Cloud infrastructure until 2023 due to the tax benefits included within the super-deduction scheme announced by the Chancellor in Mar ’21.
As part of the Budget 2021, the Chancellor, Rishi Sunak, announced a new capital allowance ‘super-deduction’ and first year allowance. The hope is that these will provide companies a stronger incentive to make qualifying investments and bring forward planned investments for future years.
Link to the full details on UK Government website can be found here.
In theory, as the tax break is on Capital expenditure, one can write off such investment against taxable profits. The allowance effectively allows a company to write off 130% of the capital value and it’s all up front. It would, in theory suggest, a tax benefit over the rental model where tax deductibility is based on 100% of the in year subscription only. So could take 5 years to get the deductions and only up to 100% of the value.
Key extract “The 50% first-year allowance (FYA) for special rate (including long life) assets until 31 March 2023 for companies. The kinds of assets which may qualify for either the super-deduction or the 50% FYA include, but are not limited to: • Computer equipment and servers”
Obviously, it’s needs to be looked at on a case-by-case basis with the support of a tax specialist.
If I’m wrong, I’ve welcome input on what I’m missing.