Website development costs – our thoughts on the tax and accounting issues involved

Some people write-off the cost of development as a profit and loss expense without knowing any better. Others go to the other end of the spectrum and capitalise everything.

What’s the right thing to do?

According to the Accounting Standards Board (via UITF 29), if the development you do leads to “future economic benefit”, it goes on balance sheet. If it doesn’t, then you can write it off for the year

A quick summary of the stages of developments and their associated treatments:

i). Planning – P&L
ii). infrastructure: domains, hosting, et cetera (usually relatively inexpensive things) – see below.
iii). Design – (developers) – see below.
ix). Content – whether it’s a one-off or an ongoing thing – see below.

Does your site sell anything?

If yes, then stages 2-4 go on the balance sheet. If not, then all the development costs for your website aer written off.

What do HMRC say?

Surprise, surprise, they have a very simplistic view of it and it is totally the opposite to the Accounting Standards Board – “the cost of a web site is analogous to that of a shop window. The cost of constructing the window is capital (an asset on the balance sheet); the cost of changing the display from time to time is revenue (an expense on the P&L)” Read more

What do I do, then?!

You have to go with the ASB rules when you produce your accounts but adjust for your tax calculation – disallowing “expenses”  where you need to

Some good news, though…

Software costs are “plant” per taxman (you can write-off up to £100,000 every year 20% subsequently – website costs usually fall under this topic.

A domain name purchase cannot be  “plant”

Please contact us if you need to look into this further.

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