Brown ignores calls to keep tax breaks
SME capital allowances dropped despite industry appeal
The government has ignored industry pleas and axed tax breaks on IT purchases, a move that could deter firms from upgrading.
Chancellor Gordon Brown chose not to renew the 100 per cent capital allowance on IT purchases by SMEs, despite the hopes of business leaders.
Companies that had postponed system refreshes while IT budgets remained tight will be hit by the loss of the breaks, claimed Andrew Bell, UK technology leader at PwC.
"It comes at just the wrong point in the spending cycle for these firms," he said.
Both the Confederation of British Industry and the Federation of Small Businesses (FSB) had lobbied for an extension of the breaks.
According to Simon Sweetman of the FSB, they are "vital to ensure that all UK small firms get online".
Shaune Parsons, managing director of VAR Computer World Wales, said: "This wasn't something many small firms knew about in the first place because the government didn't make enough of it.
"But once companies understood it they learned it could save them money."
Parsons added that the news will "definitely" make medium-sized firms think twice about buying IT.
"This was an election budget. Instead of alienating individual voters Brown targeted companies, because they cannot vote," he said.
Neil Southern, director of the Technology Means Business organisation, said: "This is not good news for small businesses, or for encouraging investment in IT, which we had viewed as something the government would be more likely to encourage than discourage."
In addition, Brown announced he is cracking down on tax avoidance.
Changes to corporation tax made in 2002 had encouraged contractors to set themselves up as corporations, in order to reduce their tax burden.
But he has decided these firms will now be levied a 19 per cent distributive tax on profits. This will discourage IT professionals from becoming self-employed and push up rates for contractors.
Stephen Herring, tax partner at analyst BDO Stoy Hayward, said: "A tremendous number of SMEs converted to corporations after 2002, costing the government money. But the chancellor has not reversed his initial decision.
"As long as firms don't reclaim all their profits and reinvest some in the business, they will avoid the additional tax."