Explaining tax on business websites

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There are a number of recurring themes regarding types of business expenditure on which we are often asked to explain the tax treatment – and one such example is the business website.

Websites have become an important tool for businesses to market services and interact with customers and clients.

The simple one-page site to give an internet presence has in many cases been replaced by large and complex sites, containing databases, searches, secure areas, payment and ordering facilities and two-way communication channels. Expenditure levels can be significant.

Many business owners take the view the website is an advertising tool and should therefore be deducted from profits in arriving at tax liabilities. The view of HMRC is, however, not as clear cut and they take the view that the cost of setting up a website is likely to be capital expenditure and should not be included in the profit and loss account as an allowable expense. Regular maintenance or update costs are, however, likely to be revenue expenses and can be deducted. HMRC draw an analogy with a shop window. The cost of constructing the window is capital, but the cost of changing the display from time to time is revenue.

Even if the cost of a new website is treated as capital for accounting purposes, it may, however, be possible to claim a tax deduction under the capital allowances regime, on the basis the cost could be considered computer software.

The cost of acquiring a domain should be considered separately. For companies, capital allowances will not be available as the domain would be treated as an intangible asset, but it may be possible for a tax deduction to be claimed over the useful life of the asset, under specific tax rules for intangible assets.

Should you require further assistance with this or any other tax matters, Mark Thompson of Rennie Welch LLP can be contacted on (01573) 224391 or mark.thompson@renniewelch.co.uk