Millennium bug fixes to gain ‘instant’ tax relief

The Government is expected to announce tax relief for businesses which invest to combat the millennium computer problem. The move, which is expected to be made public next week, would allow companies to write off the cost of all millennium bug remedial work against corporation tax in the year of its spending. The Government had […]

The Government is expected to announce tax relief for businesses which invest to combat the millennium computer problem.

The move, which is expected to be made public next week, would allow companies to write off the cost of all millennium bug remedial work against corporation tax in the year of its spending.

The Government had previously argued that there was no case for special tax treatment (Government likely to stamp on 2000 bug tax, The Engineer, 5 February).

The expected tax move was revealed in a letter to Lord Cope, former paymaster general and minister for small business, who wrote to the chancellor in January asking for an allowance for UK companies investing in tackling the millennium computer problem. He had also called for a windfall tax on computer firms to create a fighting fund for small business.

In a personal Treasury reply received last week Cope was told the Government will announce that it is ‘putting an end to uncertainty’ and will allow ‘software projects to ensure that existing problems can be adapted for the millennium will be treated as a revenue matter’ meaning, said Cope, that expenditure incurred will be fully recoverable against corporation tax or income tax in the year of expenditure.

Traditionally, significant expenditure on computer related assets has been treated as a long-term capital cost and has had to be written off against tax gradually over a number of years.

‘This is a victory for common sense,’ said Cope. ‘The millennium tax allowance means that every business, without argument, will now be able to write off millennium computer bug-related expenditure at once. This would be a great incentive for UK businesses to tackle the issue while there is still time.’

The Treasury has made it clear that traditional IT capital expenditure such as replacing old equipment with new millennium compliant systems will still be treated as a capital cost and not revenue spending, and will not be subject to the new tax treatment.

Richard Copple, chief executive of Prove It 2000, the specialist PC auditing and fixing company, said this proposal would ‘encourage businesses to fix rather than replace equipment. That will be less costly and will again allow companies to make savings in tackling the millennium bug. This is a significant step forward.’