Super Deductions: Will the Government Pay for Your Recruitment Software?

Recruitment is all about people. It is not about eking out efficiency through capital expenditure in manufacturing equipment, renovating factories, or investing in a new fleet of lorries.

But efficiency matters to a recruitment business just as much as to any other organisation. With its recent budget, the UK government has committed to supporting companies in making investments to improve efficiency.

You may not have realised it, but that includes recruitment companies. The result? A hidden change in the 2021 UK budget that could save you nearly 30% on your recruitment technology. Read on to learn how…

What is a super deduction, and how will it help your recruitment agency?

In short, the UK Government is offering a 130% super deduction on capital investment. There are various rules (I am not your accountant, so please do your own research!). Essentially, this means that an agency making a £1,000 qualifying investment will be able to reduce its corporation tax bill by up to £250.

Simplistically, the UK Government will allow you to make this claim if you invest in something that will deliver benefits over time. For an agency, a good example of this would be an investment in a new recruitment software.

But – there’s a drawback!

There are two ways of buying software. An agency can “buy” a software licence or can “subscribe” to a software licence. Buying an outright purchase licence (where you pay an upfront fee) is considered a capital investment, but a subscription (SaaS) purchase is not. As a result – although the two products may be identical – the government’s new super deduction will support buying an outright purchase licence but not support a subscription-based purchase.

The software industry wants your business!

In the recruitment industry, virtually every software company sells its products on a subscription basis, and Ikiru People is no different. Frankly, subscriptions generate more revenue for software companies in the long term.

However, we (and I’m sure, all the other recruitment software vendors) want to make it easier for recruiters to invest in new tech, and if we can help, why wouldn’t we?

As a result, from the start of the new tax year (April 6th, 2021), we’ll be offering Voyager Infinity and FileFinder Executive Search Software on a licence purchase basis (as well as our normal SaaS subscription). This is a commercial-only change – the delivered product is identical. We all want your business, so we assume most software companies will consider doing the same.

What does this mean?

From April 6th, any agency looking at investing in recruitment software should consider the possibility of making a licence purchase rather than signing up for a subscription. While every situation is different, this is likely to mean that the government will pay for between 19% and 25% of your investment and you will receive the same cloud-based product. Be sure to ask your sales representative to quote on this basis!

the cash impact of buying a license and paying for it over the initial 12 months with a 19% rebate in month 16

This chart shows the cash impact of buying a license and paying for it over the initial 12 months with a 19% rebate in month 16. For completeness, it also includes an ongoing hosting & support fee to run alongside the purchased license.

Disclaimer: This article relates to “Super Deductions” for Corporation Tax, as announced in the UK budget in March 2021. Tax law is complex and so speak to your accountant about the relevance and appropriateness for your recruitment agency.

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