Websites are increasingly necessary for businesses to trade effectively – after all, it’s 2013, don’t all businesses need a website?
You can view a website for your business in a couple of ways:
- As a cost; a necessary evil that all your competitors have, so you’d better have one too.
- As an investment; it will either be your online brochure or a way of your customers buying things from you, but either way it will make you more visible to the rising number of people who get information online.
So how do they get treated for tax purposes?
Well the treatment is driven by how it is used.
If it is an online brochure, the ‘online presence’ type, you can argue that it should be treated the same as marketing. In this way, although you may get an ongoing benefit, the whole cost is treated as an expense, which will then appear on your profit and loss account as a cost. This tends to fit in with the amount of expenditure, as it may cost a couple of hundred pounds.
However, if it is an e-commerce website, there is a considerable amount of work going on, and inevitably cost, so it would be capitalised and appear on the balance sheet of your business as an asset, which is then depreciated over it’s useful estimated life (which could be 3-5 years). For tax purposes, it would benefit from the Annual Investment Allowance and may all receive full tax relief.
The difference between the two approaches is virtually nonexistent for tax purposes – as the business may receive full tax relief using either method – although for accounting purposes, the ‘capitalised’ option removes the cost from the profit and loss account in one hit, with it being written off over several years. This is an important aspect for a new business which may be seeking to improve profits in the first couple of years.