Website Costs & Tax

Websites are, in todays world, used widely to advertise a business, sell goods/services and to ‘show off’ your business. They can however be quite costly when it comes to maintenance and even set up costs. This becomes extremely evident when selling goods & services online.

Taxman
An ‘electronic shop window’ is how the taxman sees the website, so he believes the cost of creating it counts as capital expenditure, which creates a fixed asset. Maintenance, i.e. updating or changing the content is a regular expense to be set against profits. Basically, the taxman treats this virtual shop window as a real shop window, thus he believes the same rules apply.

No Tax!
Unfortunately the Taxmans logic means there’s no tax relief, as only fixed assets such as plant & machinery are eligible for Capital Allowances. If you host it yourself as opposed to an external web host then you could claim Capital Allowances on the actual hardware costs (i.e. the computer and associated peripherals). The actual website isn’t a physical item so the costs associated with it don’t qualify for Capital Allowances.

GAAP - ASB
The GAAP (Generally Accepted Accounting Practice) for accounts must be followed by all businesses when calculating their profits. So, this means you must abide by the ASB (Accounting Standards Board) accounting standards. And, in there latest instructions regarding website development costs contradict the taxman…

UTTF Abstract 29
The Urgent Issues Task Force states that the planning costs for a website are to be charged against profits when they are incurred. The actual development and design costs should only be capitalised if the expenditure will create an asset which has a long term net benefit. Basically, the website must generate sales or costs savings that are equal to, or greater than the design & development fees. It also tells us that the website much generate sales or other revenues directly if the costs are to be capitalised.

Direct Sales
Websites that include booking facilities or online sales can have the design and development costs associated with them capitalised. Any other website costs are to be charged against profits, thus making them tax relievable in full.

Debate
The taxman may challenge you on this, basing his argument on some pretty prehistoric cases. However just make him aware that your simply following the rules regarding production of true and fair accounts.

Summary
All expenses for the website costs should be charges against profits in the year they are incurred. Don’t treat it as a fixed asset (don’t capitalise!) any part of the development costs. And, if the taxman challenges this, just follow the advice in the previous paragraph!