How will the cost of my website be treated in my accounts?, this is one question I have been asked many times, also one that seems to confuse many, including accountants, and no wonder, technology and the way we all do business has changed at such a fast pace in the last five years that many of us are just trying to keep up.
It’s a very relevant question when you see what some people spend on website’s these days, therefore the question is can I get tax relief or not?
In a nut shell, if your website generates sales directly, then the cost of that part of your website would be treated as not tax deductible, that is the cost of developing or designing the online sales, shopping cart or booking system sections of your website, the rest of your website is tax deductible, including future updating.
As with all posting on our website you must refer to our terms of use and as always take your own professional advice based on your particular circumstances.
| 3.2 |
Filter Comments
Filter by: is
alastair (Who am I?)
2 years ago
strange question and even stranger answer. What is your reasoning?
Jason Holden (Who am I?)
2 years ago
You have lost me Alastair? My reasoning is tax law. Unless I have misunderstood your point?
The reason I made this posting, we are seeing more and more people who have websites and it is common to see over at accountingweb this question again and again from accountants!, and more recently we have been asked this question a few times, so I thought it was time to clarify the position.
The cost of the part of a website that generates sales is a capital expenses the rest is revenue, as are future updates.
Dennis Howlett (Who am I?)
2 years ago
I think you’re off the mark on this one Jason – we’re talking software and services. First up – remember that with most software, you don’t acquire ownership of an asset which can be capitalized, therefore it must be an expense as a ‘right to use.’
Second, only people who have been shockingly advised or are being ripped off spend oodles of money on websites. Even where you can point to asset basis then I’d argue ‘short life’ at worst and lease at best.
Bottom line – software is a cost of doing business and should be expensed accordingly. If the idiosynchrosies of the rules appear to catch the user out, then structure the deal accordingly.
End note – a good case for adopting saas, which most certainly IS an expense.
Jason Holden (Who am I?)
2 years ago
Unfortunately the tax legislation on this is clear, however, the cases the tax man uses to argue this are VERY out of date so if you find yourself on the other end of this read on.
Also, most websites the actual cost of the ‘shopping cart’ section would be small, therefore splitting out this element would not really be possible, not material.
If, like me, you would expense the whole amount, as you quite rightly state Dennis, then you would do so in accordance with UITF Abstract 29, which in short states ‘website development and design costs should only be capitalized if it can be shown that the expenditure will create an asset that has a long-term net benefit for the business’.
That said, there are cases where a business that is run on the internet with a database sat behind a full booking system website where no involvement is required from a person as it is automated, then that may be a website you want to capitalize as it does not conform to UITF Abstract 29, or does it? ‘Long-term net benefit’?
What about wider implications, if the website has cost a lot of money and the website is effectively your business then surely this is something you would need to consider having on your balance sheet? Having it on your balance sheet may also be more in line with the UITF than not!
I totally agree though, adopt saas and never worry about the complex area of websites and the taxman!
Amasing isn’t it, something as simple as a website here in the UK has a complicated set of rules to look at!
Dennis Howlett (Who am I?)
2 years ago
Check what happened with Blognation.com. Set up in June last year, spent est £35K on site development (though goodness knows where), shuttered last week. The site was the people and not the design. The same as these blogs.
More important from a business perspective – why put the client through such crap. Expense as a leased item – that’s how a LOT of software is treated these days.
Jason Holden (Who am I?)
2 years ago
Den, the only websites that would ever have to argue the treatment are those that operate a full online booking system i.e. not with people power to generate sales, blognation is a totally different situation.
Dennis Howlett (Who am I?)
2 years ago
Ummm – OK – so the website is the business (as in BN), people behind it (natch), sells ads (inventory?) but treated differently to an eBay clone. Right. I’d love to argue THAT one.
Jason Holden (Who am I?)
2 years ago
Den, I am not arguing the ins and outs as this was only intended as a general guide.
I have given details on how the tax legislation treats a website, I have given details on how the UIFT Abstract over rides this old and outdated legislation, beyond that it is down to the accountant to advise on the particular situaiton.
I do however feel you have missed the point Den, please read the UITF Abstract, then look at the tax case of Strick V Regent Oil Co Ltd, then look at accountingweb to see how many times the quesiton comes up on how do I treat website costs of £x for Y situation, then you will understand where the posting came from.
This is yet more evidence of how many accountant/tax advisors get tangled up in website costs, in the main this will be a mute point for many of you, as many of you will be paying monthly, in which case it is an expense and the vast majority will not have a business that runs solely on their internet website (full online booking system) in which case the costs should always be expensed to give an accurate reflection in the accounts of the situaiton, which is done in accordance with UITF Abstract 29.
Dennis Howlett (Who am I?)
2 years ago
Sure – but trust me on this – I haven’t missed the point.
Jason Holden (Who am I?)
2 years ago
Unfortunately Den, the reason these discussions happen is because UK tax legislation is outdated, you have to remember though, some businesses may want the asset value on their balance sheet (if they have spent that much) and not be too fussed about the tax aspect.
Back to the case I quoted, if you look at it you will see it is a 1965 case, now correct me if i’m wrong here but did we have an internet then? And is this case really still applicable to websites?