Archive - 2003 Budget: Budget highlights Capital taxes Duties Value added tax National insurance 2003/04 tax calendar Business tax Investment incentives Income tax Pensions Company cars Other measures announced

The 100% first year capital allowance available to small enterprises for expenditure on computers and communication technology has been extended until 31 March 2004. This measure will be welcomed by many businesses especially those which will be redesignated as "small" enterprises when the definition is realigned later in the year. The definition of "small and medium sized enterprises" is also set to change, extending the availability of the 40% first year allowance on most plant and machinery. Expenditure incurred on or after 1 April 2003 on specifically defined plant and machinery designed to conserve water and improve its quality will qualify for a new 100% first year allowance.

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	Watch the timing of capital expenditure, as this will affect the timing and extent of tax reliefs and your VAT recovery.

A number of amendments are proposed to the current rules for claiming R&D tax credits. These include:

• The de minimis level of qualifying R&D expenditure to claim R&D tax credit is reduced from £25,000 to £10,000 for an accounting period.
• Qualifying expenditure on staffing costs is extended to include workers paid through a third party and not employed by the R&D company.
• Previously, costs for staff working less than 20% of the time on R&D did not qualify for relief and staff working more than 80% of the time qualified for 100% relief. With effect from a date to be confirmed, staff costs can simply be apportioned.
• SMEs receiving grants or other state aid towards an R&D project are prevented from receiving SME R&D tax credit on the project. In certain circumstances, SMEs have been able to claim the large company R&D tax credit (not a state aid). From a date to be announced, SMEs will be able to claim large company R&D tax credit in the circumstances outlined.

For large companies the changes apply from 9 April 2003. For SMEs, the rules are dependent on approval from the European Commission and will commence from a date to be announced.

A consultation document to be issued by the DTI and Treasury is to review the definition of research and development and will consider the development end of R&D, innovative elements of design, the uniqueness of the R&D being undertaken, software development and the definition of consumable stores. The consultation document will also review the extension of R&D tax credit relief to software licences in respect of short life, advanced software.

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