Loss Of Tax Break May Discourage UK Firms From Investing In IT Upgrades

by Jason Gorringe, Tax-News.com, London

01 April 2004

The decision by UK Chancellor of the Exchequer, Gordon Brown to scrap a tax break designed to help small firms invest in information technology upgrades has been criticised by industry groups for sending out confusing signals on government policy.

The scheme, which gave small firms a 100% capital allowance on the purchase of new information and communications technology, expired yesterday after the Chancellor failed to renew the three-year-old scheme.

Whilst the net loss to firms will equal a relatively small £10 in every £100 spent (now that capital spending allowances have been increased from 40% to 50%), business advisors point out that the move will likely have a psychological effect on small firms, making them more reluctant to invest in new IT equipment.

Critics also argue that the decision to let the tax break expire contradicts the government’s own commitment to promote e-commerce in the UK, by encouraging growth in broadband coverage and investment in new technology generally.

Brown’s decision would also appear to run counter to the findings of a survey conducted by the Department of Trade and Industry, which indicated that the high set-up costs of upgrading business systems was the main reason cited by small firms for their reluctance to invest in computer and IT equipment.

The study also found that some small enterprises were actually shunning new technology by disconnecting from the internet altogether.

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