100% IT tax break soon to disappear

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100% capital allowances for small businesses investing in information technology systems is soon to end, just as thousands more businesses become eligible to claim it.

Expenditure on such items as computers, internet-enabled telephones and scanners can attract 100% capital allowances in the current year's accounts.

There is some concern that the valuable allowance may be reduced or scrapped in the Budget on 17 March. It was due to end anyway on 31 March 2004, having been extended from 31 March 2003 by FA 2003.

The relief means small companies paying 19% corporation tax and buying 10,000-worth of computer kit, will save 1,900 in tax at the end of the year. The same tax break also applie...

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26th Feb 2004 14:36

Update - good news
Janet,

My local inspector was friendly but unable to answer the question, so I read the SI myself.

Regulation 7(2) of SI 2004/16 makes it absolutely clear that when considering periods ending after 30-1-04 the new limits are applied to that period and to the "previous financial year". The status of the previous financial year determined under the old limits is thus irrelevant.

I've read the article in TAXline and although it would be harsh to describe it as wrong it is certainly less than clear.

SI 2004/16 is available on the HMSO website.

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23rd Feb 2004 14:11

timing difference
Like any accelerated allowance, in the initial year and it is only a deferral of tax, as compared to non-100% deduction .

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23rd Feb 2004 13:38

Does this really save tax?
Isn't it more correct to say it improves cash flow?

The IT spend can be offset against tax in year 1. Without the tax break, it is spread over 4 years.

The same amount of tax is reclaimed, it's just reclaimed quicker with the tax break.

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23rd Feb 2004 14:00

Capital allowances over more than 4 years
Yes, although since capital allowances are calculated on a reducing balance basis they are spread over more than 4 years.

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24th Feb 2004 16:00

Looking again...

.. at the IR Press Release (of 30-1-04) it does state quite unequivocally that businesses falling within the new limit will qualify for 100% FYAs on relevant expenditure incurred before 1-4-04. It does seem therefore that they have adopted the interpretation described in my previous posting.

I have put in a call to the local tax office to ask for confirmation of this.

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24th Feb 2004 15:28

What will the Budget do?
I'm no expert when it comes to speculating about the Budget, but isn't it possible that the relief will be extended a further year?

My response to this is to prepare an order for some IT equipment we'll need in the next six months, but I won't place that order until we know the relief isn't being continued - I'd look a bit stupid to spend a load of money if I don't need to!

If cash flow can stand to pay out for this stuff a bit earlier, I'll do it for what could be a significant acceleration of capital allowances.

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24th Feb 2004 15:00

Janet and Brian
I'm not sure things are as bad as you think.


Since the effect of the Stat Instrument is to change the relevant limits, the new limits will presumably be applied in exactly the same context as the old limits. Thus, for a company with an accounting ref date of 31 March, its filing obligations for 31-3-04 depend on the figures for that year and the year ended 31-3-03 but the figures for both years are compared to the new limits, not the old.

This seems a logical interpretation but I cannot be sure it is correct without reviewing the relevant sections of the Companies Act and the whole text of the Stat Instrument.

Could this explain why the IR's Press Release doesn't cover the point?

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