Tax breaks expected for high-tech sector

The Chancellor is set to annouce tax relief for techological know-how when he releases the pre-budget report on Tuesday

The high-tech sector is set to benefit from a tax break with the release of the government's pre-budget report (PBR) on Tuesday.

Gordon Brown is expected to unveil new UK tax laws in his annual PBR report, which will recognise technological know-how as intellectual property (IP), and hence provide tax relief for companies purchasing brand names or software development programmes.

"The government is recognising that the economy is not just about factories and machines, but that brands and services have a value to business as well," said Andy Newsome, tax partner at consultancy firm Andersen, formerly Arthur Andersen.

HM Treasury issued a consultative document about the treatment of IP in the technology sector two years ago. The most recent report suggested how a new regime might apply to technical know-how and brand names, which in the past have been treated as good will and hence excluded from any tax breaks. The high-tech overhaul was not written into the March budget this year, but is set for inclusion in the imminent PBR, with the view to implementing the tax breaks by March 2002.

According to Newsome, the tax breaks will have little impact on the technology sector on a day-to-day basis, will be important for business acquisitions. "The tax breaks would make a difference for service companies who buy businesses without machines, where they are paying for know-how, and the value is related to a brand," said Newsome. The tax benefits will be written off against the number of years that the acquiring company is paying off its debts, and make the monthly payments closer to its accounting profits.

The Capital Allowances Act 2001 already provides some form of tax relief for the purchasing of computer software and licences, but the PBR is expected to extend these benefits to telecoms licences. "It seems like good news -- anything the government does which encourages the use of legal software, whether through a voluntary tax break or legal enforcement, has to be a good thing," said Richard Saunders, chair of the UK committee at the British Software Association.

Gordon Brown will be unveiling his PBR on Tuesday afternoon at 3:30pm.

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