Can you capitalise website development costs?

A client recently asked if we knew if they could capitalise the cost of their website development, as we are not accountants and never been asked before, we weren’t entirely sure of the answer – so we went digging (we also told them to ask their accountant).

We had a Google…

We did some digging around the internet to find if you can capitalise website development costs and this is what accountants in the UK have to say on the matter.

Design and content development costs should normally be treated as capital expenditure to the extent that an enduring asset is created.

Where a website directly generates sales, subscriptions, advertising or other income this will normally be considered to be an enduring asset. It is, however, also necessary to confirm that the website will have the lifetime normally expected of a capital asset (as noted above, anything under two years is likely to be accepted as revenue expenditure).

ATT

If you’ve created an asset, this expenditure normally gets tax relief through the ‘Capital Allowances’ rules. Under these rules, your website will often count as ‘Plant and Machinery’. So, you will be able to claim 100% deduction in the year you spend the money.

For the other costs such as maintenance, updates and hosting, you will also get instant tax relief under the normal rules for business profits. This means you can claim 100% relief for the costs in the year you spend the money.

Heelan Associates

Most websites these days offer customers a method of ordering goods or services, communicating with their business and finding out detailed information on products or services. All of these are clearly functions and so HMRC now accept that certain website costs will qualify for capital allowances as ‘plant and machinery’.

Typically the expenditure which falls into this category as ‘plant and machinery’ is as a follows:

• Purchase of a domain name
• Hardware relating to the functionality of the website
• Operating software relating to the functionality of the website

Because this form of expenditure is treated as plant and machinery, capital allowances can be claimed as part of the annual investment allowance (AIA for short).  This means a tax deduction of up to £200,000 can be claimed for the financial year in which you incurred the expense.

The Friendly Accountants

Check with your accountant

We should reinforce that we are not accountants so you should really check with yours to double check and make sure the information is right.

This was an interesting question and one we haven’t had before, no prior client has asked us this question.

But from what we can find, this shouldn’t put your off starting your new website, e-commerce website, mobile application or api development project, you’re still going to get the benefits on tax and the benefits of your shiny new software!

Get in touch today to start your project!