Brown gives IT much of the same

Prudence ruled today as Gordon Brown presented his Budget and there was only a small amount of change for the IT industry.

An industry wish list would include an extension of the tax relief for R&D, an extension of the 100 per cent allowance for ICT purchases by SMEs and, possibly, some tax relief for training.

Well, there is no extension of the tax relief for R&D - but it will be easier to claim. The scheme was first presented by the Chancellor four years ago, but the bad fairy tax inspector made it very difficult to claim for IT firms.

David Cobb, managing partner for Deloitte's R&D tax practice, said: "The inspectors were very strict on software to start. And companies, seeing the requirements for innovation and novelty, were too strict on themselves and reluctant to apply."

Last week, the DTI issued looser guidelines and today Brown promised the Inland Revenue would produce a list of allowable expenses to claim.

Richard Barrington, head of government affairs and public policy at Sun Microsystems, welcomed the move. "It was very useful to do," he said. "We do extensive R&D at our centre in Scotland. You need that comfort factor of knowing what is allowable when you go to the tax man."

"It takes a great deal of time to prepare these things and you don’t want to use more time in resolving disputes," he added.

Andrew Bell, technology leader at PricewaterhouseCooper, had found that out of a 100 early stage technology companies "60 per cent had either not bothered to apply or been turned down."

Cobb welcomed the new guidelines. "They finally allow claims for software licences," he said. "In R&D in IT these can be very substantial costs – but it's disappointing that the terms were not extended."

Cobb advocates a scheme similar to that of Canada, where a proportion of company overheads can be claimed against tax.

The other chink of light for IT was the increase in allowances for VCTs (Venture Capital Trusts) from 40 to 50 per cent.

Cobb said: "Like the improvements in R&D relief, you have to say that any positive move is a good thing. But it's the same in effect, enough to make sure that companies don't move away, but not enough to attract them in."

For high-fliers worried about the cap on pensions, Barrington has a suggestion. "If you can't put any more towards your pension, you’ll look for another investment – this could be the thing," he said.

The 100 per cent capital allowance on ICT purchases by SMEs will die at the end of the month unless, unlikely, there is another move to revive them. As Bell pointed out, this is partly ameliorated by the first year increase in allowances for SMEs from 40 to 50 per cent.

And, while the Chancellor talked a great deal about improving education and training, there will be no tax incentives for them. Barrington said: "I think they missed a chance here. We need a lot of training and re-training to keep up the UK skills base – there'll be 50,000 civil servants forced to look for productive work – what skills do they have that are in demand?"

IT can claim at least one success today; Brown said that the £2bn investment in technology at the Department of Work and Pensions would allow the department to cut staff by 10,000.