Chancellor extends R&D credit and 100% tax relief on IT purchases for SMEs

IT leaders spell out what Gordon Brown's budget means for UK businesses.

The budget IT leaders spell out what Gordon Brown's budget means for UK businesses.

While last week's budget lacked the public spending bonanza of recent years, and was largely overshadowed by events in Iraq, chancellor Gordon Brown had some good news for IT managers and the computer industry.

Proposals to improve the tax regime for research and development and the extension of 100% tax allowances for IT purchases were particularly welcomed.

A commitment to boost public spending also won approval, both from hard-pressed suppliers and public sector IT professionals.

However, the chancellor's pledge that the data protection commissioner would produce revised and simplified guidance on the Data Protection Act was greeted with more scepticism.

Brown announced plans to abolish or reform 40 different regulations and introduce improvements to R&D tax credits for all sizes of company. He extended the 100% first-year capital allowance for small businesses' IT investments until March 2004, saying this would encourage up to 3.7 million businesses to invest in IT.

The chancellor also gave a further boost to IT investment with changes to the definition of a small to medium-sized enterprise. The qualifying threshold for SMEs will be raised to the European maximum of turnover of £20m, making more companies eligible for the 40% IT investment allowance.

John Higgins, chief executive of IT suppliers' organisation Intellect, was positive about the budget. "The R&D credits, in particular, are a welcome boost," he said.

Small-business groups welcomed the measures to encourage investment in IT. "The [extension of the capital allowance for IT] is good news as it incentivises small business to computerise," said a spokesman for the Federation of Small Businesses.

He also welcomed the beefed-up R&D tax incentives, but added that there was still confusion over what investment qualifies as R&D.

David Harrington, industry adviser at the Communications Management Association, was equally pleased by the extension of tax relief, but he was disappointed by the chancellor's lack of help for the communications sector.

"Communications is the great enabler but there was little mention specifically of its contribution apart from a throwaway comment about how the £22.5bn revenue from the 3G spectrum auction had helped the Treasury," he said. "There was also talk of encouraging the regions but no mention of the need for the expansion of broadband. It is a sad omission."

Simon Bragg, manufacturing IT analyst at ARC Consulting, said the 100% allowances on IT spending were a useful boost but said, "UK manufacturing needs more. Government needs to link training budgets to improve skills so that manufacturers can exploit IT developments so the UK can become a high-skill manufacturing economy."

However, Derek Brownlee, a tax executive at the Institute of Directors, was less enthusiastic, calling the Budget "pretty thin stuff". Although he welcomed the chancellor's initiatives aimed at smaller businesses, Brownlee said, "We will be cautious until we see the details."

Terry Watts, chief operating officer at public private skills partnership E-Skills UK, welcomed Brown's efforts to boost training in small businesses.

"The government is taking skills development seriously and putting support behind it. How it will pan out needs to be thought out. I hope they will build on existing programmes to meet the targets. They don't need to reinvent the wheel."

Bob Griffith of local government IT managers organisation the Society of IT Management welcomed Brown's commitment to spend an extra £61bn in the public sector by 2006, but warned that local government should not be overlooked.

"We have got to meet the 2005 targets and the effort required to change back-office procedures is significant." Existing funds would not do the job, he said.

Ewan Davis, vice-chairman of the British Computer Society's Primary Health Care Group, also welcomed Brown's public spending commitment.

"The money announced for the NHS IT programme now looks certain," he said. However, he warned that promises to simplify the data protection regime were easier said than done. "Any simplification that protects the right to privacy would be very welcome, but it is not an easy balance to strike."

Richard Thomas, the information commissioner, said, "We are keen to help the business community achieve high standards for handling personal information as a matter of self-interest. We are planning to publish simplified guidance on the legal requirements for small business. And we are revising the draft Employment Code to make it as easy as possible for small businesses to follow."

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