EXPLANATORY NOTE

1. This clause defines a small business in Clause 70 using the same criteria as in the definition of a small company under the Companies Act.

2. Clause 70 enables small businesses to claim first year allowances ("FYAs") at a rate of 100 per cent for their spending on information and communications technology ("ICT") between 1 April 2000 and 31 March 2002. A small business can qualify if it is a "small enterprise", as defined in this clause. The definition follows closely the existing rules in Section 22A Capital Allowances Act 1990 that determine whether a business is small or medium-sized for the 40 per cent first year allowances for expenditure on machinery and plant.

3. The businesses that qualify for 100 per cent FYAs on ICT are broadly companies which are small under the criteria in the Companies Act, or businesses carried on by individuals and partnerships of individuals provided the business would qualify as ‘small’ if it were a carried on by a company.

4. A company is small if it satisfies at least two of the following conditions:

• turnover not more than £2.8 million;

• assets not more than £1.4 million;

• not more than 50 employees;

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1. Clause 71 introduces a new Section 22AA into the Capital allowances Act 1990 ("CAA") which defines the meaning of "small enterprise" in section 22(3E) CAA.

2. Section 22AA(1) provides that expenditure incurred by a company is expenditure incurred by a "small enterprise" if the company is small for the financial year of the company in which the expenditure is incurred, and is not a member of a large or medium-sized group at that time.

3. Section 22AA(2) provides that expenditure is incurred by a "small enterprise" if it is incurred by a business for the purposes of a trade (which includes a profession, vocation, office or employment by virtue of Section 27 CAA) and, had the trade been carried on by a company, that company would, on the assumptions in subsection (3), have qualified as small when the expenditure was incurred.

4. The assumptions in Section 22AA(3) are that accounts are prepared for the business together with any other trade, profession or vocation carried on by the business as if it were a company, treating the chargeable periods of the trade as financial years of the company.

5. Section 22AA(4) provides that, subject to subsection (5), a company is a member of a large or medium-sized group at the time the expenditure is incurred if, at that time, it is either the parent undertaking of a group that does not qualify as small (by reference to the financial year of the parent) or a subsidiary of such a group. If a company is part of a foreign group, the Companies Act criteria are applied to the whole group to determine if the company is a member of a large or medium-sized group.

6. Section 22AA(5) provides that a company shall be treated as a member of a large or medium-sized group, if at the time the expenditure is incurred, arrangements exist by virtue of which it (or its successor) would, if the arrangements had already come into effect, be a member of a large or medium-sized group.

7. Section 22AA(6) defines various terms used in Section 22AA. Their meaning is the same as for equivalent terms in Section 22A, which determines whether expenditure is by a small and medium-sized enterprise for the purposes of the 40 per cent FYAs for spending on machinery and plant.

8. Section 22AA(7) and (8) provide that a company or group qualifies as small if it would do so for the purposes of Section 247 or Section 249 of the Companies Act 1985 (with corresponding definitions for Northern Ireland). Broadly this means that it must satisfy at least two of the following conditions:

• turnover not more than £2.8 million;

• assets not more than £1.4 million;

• not more than 50 employees;

1. Section 22AA(9) defines a "successor" for the purposes of new Section 22AA(5) as having the same meaning as in Section 343 ICTA 1988 (company reconstruction without change of ownership).

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BACKGROUND

2. First year allowances for investment by small and medium-sized businesses were introduced in 1997, which businesses were defined using criteria in the Companies Act 1985. This clause defines a small business similarly by using criteria in the Companies Act.

 

3. First year allowances for investment by small and medium-sized businesses were introduced in 1997, which businesses were defined using criteria in the Companies Act 1985. This clause defines a small business similarly by using criteria in the Companies Act.

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