IT tax break to placate SMEs

IT tax break to placate SMEs

The government could extend the 100% tax break on IT equipment investment in next week's Budget as a way of making up for the effects of other onerous levies placed upon small businesses.

Link: Graph: Investment levels among UK businesses over the next 12 months in IT

But tax experts warned that, if the break is not extended beyond 31 March in Gordon Brown’s Budget, small businesses have just days left to claim the benefit.

Kevin Slevin, tax partner at Solomon Hare, believes that the chancellor will extend the 100% tax break on IT equipment purchases as a means of softening the adverse impact of paragraph 5.91 of last year’s pre-Budget report, which he called ‘the proposed small business levy’.

‘I’m optimistic that the 100% tax break on IT expenditure will carry on as part of the spin that goes on during the budget these days,’ said Slevin.

Paragraph 5.91 of the pre-Budget report heralded a change of policy ‘to ensure that the right amount of tax is paid by owner managers of small incorporated businesses on the profits extracted from their company’.

The full implications of 5.91 will not be known until the Budget on 17 March.

However, Roy Maugham, tax partner at Hacker Young, was ‘pessimistic’ about the likelihood of the tax break being extended.

Maugham said that he had ‘no reason’ to think that government would continue the scheme beyond 31 March: ‘It’s been a target, along with the film tax breaks, of the tax anti-avoidance measures being undertaken by the Inland Revenue.’

He also pointed out that last year the government announced that the 100% IT tax break would not be renewed, then days later changed its mind.

But due to the new rules that changed the definition of a small business, an extra 60,000 companies are eligible for the break, and Maugham warned that the chancellor could ‘easily snatch this away on 17 March’.

The chancellor announced a temporary 100% ‘first-year allowance’ for capital expenditure on IT equipment by small businesses in his 2000 Budget speech.

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