Contractors' Questions: Will moving our IT to the cloud be taxing?

Contractor’s Question: If my small IT consultancy becomes more cloud-based would I get a tax deduction for the costs of set-up and maintenance? I am going to be saving money when compared to the company’s current IT infrastructure and CRM software, but would any bill for our moving to the cloud be settable against tax?

Expert’s Answer: As you identify in your question, Software as a Service should cost you much less to run than a traditional IT system because you won’t need dedicated IT equipment to host it. Although you mention maintenance, the need for costly manual upgrades is normally eliminated, as most providers run regular updates as they improve their systems.

In terms of the tax implications, because the service is on demand, your subscription fees would be charged to the profit-and-loss account of your company, and should qualify for a tax deduction. Any costs arising from setting up with the provider can be treated in the same way.

You mention infrastructure. If you are upgrading hardware, this can be capitalised on the balance sheet and written off over its lifetime – typically one to three years. Your company should qualify for the Annual Investment Allowance, under which you will receive a full tax deduction each year on the first £500,000 spent on qualifying ‘plant and machinery’ – this includes IT equipment. Bear in mind however that, due to an announcement in Budget 2014, the AIA will fall to £25,000 a year after December 31st, 2015.

The expert was Jon Dawson, partner at Kingston Smith LLP.

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