Cost of move to cloud computing can be offset against tax
Article Courtesy of Jon Dawson, partner at Kingston Smith LLP – Customer Question: We want to switch to cloud-based IT infrastructure and move our customer relationship management software into the cloud. Will I be able to get a tax deduction for the set-up and running costs?
A lot of businesses are migrating to cloud-based software, writes Jon Dawson, partner at Kingston Smith LLP. Sometimes referred to as “software as a service”, it is usually accessed through a web browser or app, which means you can operate it from multiple locations.
Cloud-based software can cost much less to run than traditional IT systems because you do not need dedicated IT equipment, such as servers, to host it. You can quickly scale up or down your requirements as your business changes. Most providers also put out regular updates as they improve their systems, eliminating the need for costly manual upgrades.
As the service is on demand, your subscription costs are charged to the profit-and-loss account and should be eligible for a tax deduction. Set-up costs can be treated in the same way. If the process involves designing new software, you may be able to capitalise these costs.
If you are upgrading IT hardware, this can be capitalised on the balance sheet and written off over its useful life — normally one to three years. Your business should qualify for the annual investment allowance, meaning that each year you will receive a full tax deduction for the first £500,000 spent on qualifying plant and machinery, including IT equipment. This applies until December 31, 2015, when the allowance will fall to £25,000 a year.
When choosing a cloud supplier, make sure that your data will be held securely; that you comply with data protection laws; and that you will have access to information if anything should happen to the software supplier. You should also make regular back-ups.
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For more information download our iTG-Cloudbase-Data-Sheets which highlights our iTG CloudBase services guide and ask us for a no obligation instant quote by emailing [email protected] your current user count, mailboxes, data storage size requirement and any other relevant information and choice of services.