Feature

Budget relief for IT sector

Tax relief on intellectual property and goodwill could make the acquisition of IT companies easier, following announcements by Chancellor Gordon Brown in yesterday’s budget.

Andrew Bell, technology industry tax partner at the PriceWaterhouseCoopers global technology group, said the tax relief was one of two key measures which would affect the technology industry – the other being an extension of tax credits for research and development.

“The Chancellor has promised to bring tax relief on intellectual property and goodwill in line with the UK’s main competitors by allowing intangibles to depreciate on the same basis as capital expenditure. This will have important effects on software companies and e-businesses,” Bell believed.

“A lot of these companies’ capital is tied up in the intangibles. Therefore, these measures will benefit IT companies interested in buying up fledgling ecommerce startups, and it should also make software companies more attractive to foreign companies as possible acquisitions.”

Bell welcomed the chancellor’s proposal to extend research and development credits to all companies rather than just small businesses but he cautioned, “He has waved the carrot, but there are no guarantees yet. We expect to see the fine print of this in the next few weeks.”

Bell said that overall the budget was unexciting. “Many people in the IT industry will be disappointed that the chancellor did not go far in improving the conditions for business and the IT industry in particular,” he said.

But the Computing Services And Software Association has condemned the chancellor for not taking enough action to make share actions more attractive to employees.

Director of industry affairs Tim Conway, said, “Although the CSSA welcomes an extension of tax relief on share options, there are still strict limits on the size of these schemes.

This means many employees will still pay national insurance on shares they sell. The CSSA believes this discriminates between workers who are taxed at 47% while financial investors with the same shares pay only 40%. It is easy to set in place rules for how employees can divest themselves of shares, removing the need for this extra taxation. We don’t understand why the government is so stubborn.”

The CSSA welcomed the chancellor’s announcement that he would consult on a potential tax credit for training. “There is clearly underinvestment in training. Because it’s up to employers and individuals to address the skills gap, we believe a tax credit is the best way to encourage training,” said Conway.

Brendan Burns, vice chairman of the Federation of Small Businesses, said “All the chancellor’s measures to help small businesses referred to companies and not the self-employed that need just as much support. 80% of the businesses he is supposed to help are the self-employed.

The chancellor talked several times about entrepreneurs, but when it came to the nitty-gritty he meant companies. The self-employed are rapidly becoming a new unseen poverty group.”


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This was first published in March 2001

 

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