Last November, the Department for Trade and Industry announced it was increasing the turnover threshold to be classified as a ‘medium’ business. From the start of this month, business with a turnover less than £22.8m will qualify.
But businesses falling into the new classification have only three months in which to claim significant tax breaks on new technology.
Under current tax rules, small and medium businesses are able to claim tax relief on IT purchases. Businesses can claim 100% of their capital allowance in the first year of buying hardware, software or telecoms equipment.
But this tax break is only available until 31 March 2004.
‘It’s a very small window of opportunity. For firms affected by the SME changes, they have to act now,’ said Mary Monfries, tax director at PricewaterhouseCoopers.
According to Monfries, only purchases made between January and March will qualify.
The chancellor originally unveiled the tax breaks in 2002 to encourage businesses to invest in technology, and subsequently extended it by a year. But at this stage, it is uncertain whether a third extension is likely.
‘The chancellor could extend it again if he chose: it would create a great buzz for the IT world if he did. But at this stage, I haven’t heard any rumours that he will,’ said Mountfries.
Treasury officials have refused to speculate whether an extension was likely.
‘We cannot comment on what is in the chancellor’s plans at this stage,’ said a Treasury spokeswoman.
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