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This clause provides for 100 per cent first year
allowances ("FYAs") for expenditure incurred by small
businesses on information and communications technology (ICT)
between 1 April 2000 and 31 March 2003. The main qualifying assets
are computers and associated equipment, the next generation of
internet-enabled mobile phones and computer software.
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100 per cent FYAs can provide small businesses
with a cashflow boost on their investment. The measure has a limited
duration to pump-prime investment and complements other Government
measures to get small businesses on line.
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The measure will encourage small businesses to
invest in IT and embrace e-commerce. E-commerce has the potential
to be of significant benefit to small businesses by, for example,
opening up new markets and bringing down the costs of transacting
business.
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DETAILS OF THE CLAUSE
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Subsection (1) inserts new subsections
(3E) to (3H) into Section 22 Capital Allowances Act 1990 (CAA).
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Section 22(3E) provides for FYAs to be
given at 100 per cent on expenditure incurred between 1 April
2000 and 31 March 2003 by a "small enterprise" (as defined
in Clause 71) on "information and communications technology".
Section 83(2) CAA, which treats pre-trading expenditure as incurred
on the first day of trading, and could therefore bring in expenditure
incurred before 1 April 2000, is disregarded for this purpose.
FYAs are also given on any additional VAT liability connected
with such expenditure, even if it arises after 31 March 2003.
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Section 22(3F) defines "expenditure
on information and communications technology" as expenditure
on items within any of the classes set out in new Section 22(3G).
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Section 22(3G) sets out the classes of
qualifying expenditure. These are:
Class A comprises computers
and associated equipment, including cabling and dedicated electrical
systems for computers.
Class B comprises the next
generation mobile phones, and devices designed to connected to televisions
to receive and transmit information from and to data networks, such
as the internet.
Class C comprises software,
and the right to use software for the purposes of any equipment
within Classes A or B.
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Section 22(3H) gives the Treasury the power to
add further detail to the definitions to the items in Class B
or to add to the items in Class B. This will allow new technologies
that come to the market in the next 3 years to be added to the
list of qualifying expenditure.
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Subsections (2) to (4) make various consequential
amendments to CAA.
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BACKGROUND
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Capital allowances allow the cost of capital assets
to be written off against the taxable profits. They take the place
of depreciation charged in the commercial accounts, which is not
allowed for tax.
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Capital allowances are generally given on machinery
and plant at 25 per cent a year on the reducing balance basis.
There are special rules which allow expenditure on machinery and
plant with a life of less than 5 years (short-life assets) to
be written off more quickly. Small and medium-sized businesses
can claim 40 per cent FYAS on machinery and plant generally.
