Does the 2021 UK government budget help fund TMS?
Investment into R&D has always been important, but perhaps never more so than at the moment, with a global economy that has now withstood the best part of two years of covid-related battering. That must have been a consideration in the mind of the Chancellor of the Exchequer when he stood up to deliver his 2021 Budget, not least as it contained a raft of measures that will enable companies to reduce the cost of R&D. Foremost among them were a new schedule indicating that 130 per cent of the cost of plant and machinery can be tax-deductible, a measure that will last until March 2023, and a clear attempt to stimulate investment and its concomitant economic benefits.
“This is one of the key takeaways from the Budget, as it lowers the net cost of installing financial risk management systems,” says Ritchie Fisher, Treasury Consultant at Salmon Software. “These can be such a significant cost that they often have to be approved at a senior level: they can range from a few hundred a month to several thousands of pounds per user per month, which can amount to a great deal.”
This so-called super-deduction has ramifications all across the board. Although the super-deduction applies to plants and machinery, financial risk management products are classed with R&D, thus acting as a qualifying expense. “It’s these financial management systems that allow financial decisions to be made on powerful analysis encompassing forex risk management, payments on a global level and debt management, along with most other things in the treasury 3.0 space,” says Fisher. “The system frees employees from manual processing, which cuts the operating time required. As an example of how this will affect business, a global airline has major costs attributed to jet fuel. If they are given the tools to analyse costs, and thus implied financial risk on a daily basis, they are in a better position to manage their mark to market risk or the likelihood of margin calls if their hedging strategy on jet fuel were adversely impacted on transactions with wholesalers. The real-time information and powerful reporting dynamics make these exact positions clear.
Fisher sees these changes to capital allowances as a clear move on the part of the government to stimulate growth. “Where there are challenges in providing further fiscal incentives in the Budget to encourage future stability, they have instead created an incentive to invest in further technology,” he says. “And this also applies to personnel contributions to costs. Part of the same super-deduction claims include project personnel costs. This is helpful because as matters stand, even if a company procures the funding and board agreement for a project, they may not have the labour resource to proceed to completion. However, now if they take on further staff for the related implementation, they can deduct these costs also.”
This will have a direct impact on stimulating business development, allowing businesses to become more streamlined and internal processes to become more robust. It will amplify a business’s assets, lower costs and have a knock-on effect of future developments. There will also be an effect on writing down allowances (WDAs.) “There will be a positive contribution to contingent global liabilities,” says Fisher. “There will be cost considerations in which companies will be able to offset their tax liabilities.”
All of this serves to highlight the importance of Treasury Management Systems (TMSs.) Currently, too many businesses remain reliant on manual processing, which increases the potential margin of error. It is also reliant on the incumbent to make a contribution, which has the dual effect of more potential for error and relying on the individual in question to be in situ, while at the same time tying down that individual when he or she could be freed to more strategic activities that put greater value into the business. “A treasury management system frees labour resource to create value, as appose to merely adding it,” says Fisher. “Employees are free to think about the actual processes, rather than just going through the motions,. There are now objectives for group treasuries, who can see beyond their initial remit.”
Although the lineage is not immediately clear, using a TMS can turn a cost-saving process into a profit maximising one. “It can give a treasury team, labour resource and time to think about profit maximising,” says Fisher. “It creates a higher level of transparency and allows people to prepare more strategic recommendations, that have a more significant impact.”
Above all, this type of software, such as that provided by Salmon Software’s, Salmon Treasurer, can allow businesses to become increasingly flexible, which will be increasingly important as the economy begins to recover and businesses adapt. But investment in the software can still be held back as risk-averse companies cling on to their cash. “Exponentially people need to advance their businesses, but they are still using their cash reserves to offset instability post-covid, in some cases, this inhibits the ability to invest in your own products and or infrastructure.” This, of course, will begin to change and the measures announced in the Budget will encourage businesses to invest in themselves. So too will the time limit imposed – take advantage by March 2023 or lose the chance to do so.
Find out more about super-deduction in the link below.