The Finance Bill published today contains provisions for 100 per cent first year allowances (FYAs) for spending by small businesses on information and communications technology over the next three years.

This is an important step towards meeting the Government’s objective of making the UK the best environment in the world for e-commerce by 2002. Small businesses will be encouraged to invest in IT and embrace e-commerce. E-commerce has the potential to bring significant benefits by opening up new markets and bringing down the costs of transacting business.

It will complement provisions, also published today, for the permanent extension of the existing 40 per cent first year allowances for spending by small and medium-sized businesses on machinery and plant. This will enable small and medium-sized businesses to plan their future investment with greater certainty.

FYAs can provide a cash flow benefit on new investment and will help these businesses to grow and to invest.


100% FYAs for Investment by Small Businesses in Information and Communications Technology

1. Small businesses will be able to claim 100 per cent FYAs on their investment between 1 April 2000 and 31 March 2003 in information and communication technology. They will be able to write off immediately the whole cost of their investment against their taxable income.

2. The information and communications technologies that qualify for 100 per cent FYAs are:

Computer equipment comprising computers (ranging from small palmtop organisers to large systems), computer peripherals such as keyboards, printers etc; cabling and other equipment to link computers to each other, or to data networks such as the internet; and dedicated electrical systems for computers.

High-tech communications technologies comprising WAP (wireless application protocol) phones, 3rd generation (3G) mobile phones and equipment with similar applications and functionality; and set-top boxes that are connected to televisions and are capable of receiving and transmitting information from and to data networks such as the internet.

Software comprising software for use with computers or high-tech communications technologies. This covers all computer software, including new software for use on computers bought before 1 April 2000 and the costs of creating web sites.

3. 100% FYAs are not available for expenditure on equipment for leasing or letting on hire.
40% FYAs for Investment by Small and Medium-sized Businesses in Machinery and Plant
4. The existing first year allowances (FYAs) that were introduced in 1997 will be extended indefinitely at 40 per cent for investment in machinery and plant by small and medium-sized businesses. Without the extension, they would have ended on 1 July 2000. This applies to investment by small businesses other than on information and communication technology, and to investment generally by medium-sized businesses.

5. As before, FYAs are not available for expenditure on machinery and plant for leasing or letting on hire, cars, sea-going ships, railway assets or long-life assets.
Definitions of “Small Business” and “Small or Medium-sized Business”

6. A “small business” and a “small or medium sized business” is defined for these purposes using the same criteria as in the Companies Act. The business must be small, or small or medium-sized when the expenditure is incurred.

7. A business is “small” or small or medium-sized” in a period of accounts if it satisfies at least two of the following conditions for the period of accounts or the preceding period of accounts:

small small or medium-sized
annual turnover: not more than 2.8 million pounds 11.2 million pounds
assets: not more than 1.4 million pounds 5.6 million pounds
employees: not more than 50 250

8. If the business is a company and is a member of a group, the group must also be small, or small or medium- sized, using the same criteria.


1. Capital allowances allow the cost of capital assets to be written off against the taxable profits. They take the place of depreciation charged in the commercial accounts, which is not allowed for tax.

2. Capital allowances are generally given on machinery and plant at 25 per cent a year on the reducing balance basis. There are special rules which allow expenditure on machinery and plant with a life of less than 5 years (short-life assets) to be written off more quickly.

3. FYAs for small and medium-sized businesses were introduced in Finance Act (No.2) 1997 for spending up to 1 July 1998 at the rate of 50 per cent. They were made available for a further year in each of Finance Acts 1998 and 1999 at the rate of 40 per cent.

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