Gloomy expectations for budget from tech industry

High-tech firms unlikely to get tax relief

The tech industry has just two words for Chancellor Gordon Brown as he prepares to delivers this afternoon's budget: tax breaks.

It is expected to be a cautious budget, and technology firms are not optimistic Brown will pay a great deal of attention to their needs. Despite a great deal of government talk about the importance of the digital economy and Brown himself launching the government's strategy to deal with the emerging digital divide, industry pundits believe, this time around, the government will concentrate on election-winning strategies.

If the chancellor does take pity on the ailing tech sector, the most important thing he can do is simplify the tax system, offer more tax breaks to start-ups and remove the current tax burdens on stock options, experts agree.

"Whatever benefits Gordon Brown thinks he is giving in the way of tax breaks is being taken away by administrative burdens," says Gehan Talwatte, managing director of start-up, Hoovers Online, a business information Web site. He claims small businesses need to employ a person just to make sense of the current tax system and to see what benefits, if any, start-ups can gain from so-called stealth taxes. "If you want to escape these then you need specialist help," he says.

Talwatte believes that removing the tax on stock options would encourage dot-coms to set up in the UK. "At the moment, many have their headquarters in Europe because of this issue. Options are a great way to share wealth, but in the UK it is simply not cost-effective," he says. He is not, however, optimistic about what the government will deliver. "I think this is going to be an election budget -- good on sound bites and populist in nature. The tech industry doesn't have huge expectations."

Internet analyst with research firm, Durlacher, Nick Gibson, reiterates the call for tax relief. "What the tech industry wants is as many tax breaks as possible at a time when investment has all but dried up," he says. He agrees with Talwatte that scrapping tax on stock options would be a good idea. "The biggest bugbear in the industry is the levying of national insurance on options," he says.

Some experts go a step further, calling on the Chancellor to scrap VAT on online goods. While such an idea would be a huge boost for e-commerce firms and sort out cross-border complexities, it is highly unlikely the government will go down that route.

See techTrader for the latest technology investment news, plus quotes and research.

Have your say instantly, and see what others have said. Click on the TalkBack button and go to the techTrader forum

Let the editors know what you think in the Mailroom. And read other letters.