Risk
The appropriate treatment of expenditure on developing a website is dependent on the nature of the expenditure and the function the website performs for the business. If the costs incurred create an enduring asset, consideration should be given to treating the expenditure as capital. If such costs are not identified, there is a risk that these may be incorrectly claimed as revenue expenditure.
Mitigation
Review all payments relating to the business website(s), bearing in mind that these may be posted to marketing, advertising or IT costs. Where these include any expenditure on website development, consider whether this creates an enduring asset and should be treated as capital expenditure.
Explanation
Even though expenditure on website development may be shown in the accounts as advertising, marketing or IT costs, this does not necessarily mean that it is allowable as revenue expenditure. In order to identify the correct tax treatment the exact nature of the website costs should be examined.
Application and infrastructure costs, including domain name, hardware and operating software that relates to the functionality of the website should normally be treated as capital expenditure. Design and content development costs should normally be treated as capital expenditure to the extent that an enduring asset is created. One such indication may be an expectation that future Effective from 6 April 2018 18 revenues less attributable costs to be generated by the website will be no less than the amounts capitalised.
A website that will directly generate sales, subscriptions, advertising or other income will normally be regarded as creating an enduring asset and consideration should be given to treating the costs of developing, designing and publishing the website as capital expenditure.
Whilst a revenue deduction would not therefore be allowable, this capital expenditure will generally qualify as expenditure on plant and machinery for capital allowances purposes.
Expenditure on initial research and planning, prior to deciding to proceed with development, is normally allowable as revenue expenditure.
The cost of maintaining or updating a website (in relation to price changes, for example) should be treated as revenue expenditure.
For further guidance see BIM35800, BIM35300 and CIRD25145
Source: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/717616/Capital-toolkit.pdf
The appropriate treatment of expenditure on developing a website is dependent on the nature of the expenditure and the function the website performs for the business. If the costs incurred create an enduring asset, consideration should be given to treating the expenditure as capital. If such costs are not identified, there is a risk that these may be incorrectly claimed as revenue expenditure.
Mitigation
Review all payments relating to the business website(s), bearing in mind that these may be posted to marketing, advertising or IT costs. Where these include any expenditure on website development, consider whether this creates an enduring asset and should be treated as capital expenditure.
Explanation
Even though expenditure on website development may be shown in the accounts as advertising, marketing or IT costs, this does not necessarily mean that it is allowable as revenue expenditure. In order to identify the correct tax treatment the exact nature of the website costs should be examined.
Application and infrastructure costs, including domain name, hardware and operating software that relates to the functionality of the website should normally be treated as capital expenditure. Design and content development costs should normally be treated as capital expenditure to the extent that an enduring asset is created. One such indication may be an expectation that future Effective from 6 April 2018 18 revenues less attributable costs to be generated by the website will be no less than the amounts capitalised.
A website that will directly generate sales, subscriptions, advertising or other income will normally be regarded as creating an enduring asset and consideration should be given to treating the costs of developing, designing and publishing the website as capital expenditure.
Whilst a revenue deduction would not therefore be allowable, this capital expenditure will generally qualify as expenditure on plant and machinery for capital allowances purposes.
Expenditure on initial research and planning, prior to deciding to proceed with development, is normally allowable as revenue expenditure.
The cost of maintaining or updating a website (in relation to price changes, for example) should be treated as revenue expenditure.
For further guidance see BIM35800, BIM35300 and CIRD25145
Source: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/717616/Capital-toolkit.pdf
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