Tax advantage for SMEs

THE new audit exemption and company size thresholds which come into effect in March also offer an opportunity to save money particularly on IT projects, as small and medium-sized companies (SMEs) can be eligible for extra tax relief in specific areas.

As well as reducing their compliance burden, the new limits are used to define which companies are eligible for these extra tax perks, so clients are advised to review their capital expenditure, and, specifically, their IT spending over the next few weeks to ensure they don't miss out.

If you are a small company (see table below), total relief of 100 per cent is allowable on the purchase of computers and related peripherals, and also on the new generation of G3 mobile telephones - as long as the money is spent before March 31st this year. It is possible this deadline may be extended, but it is unlikely to be as generous in the future.

In addition, for those involved in research and development, SMEs (refer table) qualify for relief at 150 per cent for every £1 spent. The threshold changes mean many more companies will be able to get this higher relief for expenditure on innovation, advances in technology and science. Indeed, this generous relief was made available to many existing companies through technical changes introduced last year. You really do need to review whether you are missing out in this area if you are involved in R&D.

And finally, a 40 per cent claim for first year allowances can be made on plant or machinery for SMEs. So, if under the old limits, you were a large company, but are now an SME, these allowances are available to you.

If you feel any of these benefits or reliefs could apply to you, you can call your local MH office for advice.

Threshold Limits

For accounting periods ending on or after 30 March 2004

	Balance sheet total	Turnover	No of employees
Defintion of:	£m	£m
Small company
Old Rules	1.4	2.8	50
New Rules	2.8	5.6	50
Medium Company
Old Rules	5.3	11.2	250
New Rules	11.4	22.8	250