Is Website Design a Capital Expense or a Revenue Expense?

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July 1, 2020

If you have recently had a new website designed, or perhaps plan to, read on to learn a tax tip you might not be aware of!

The Basics

Before moving on, let’s remember that Capital Expenditure is any amount of money spent to acquire or improve a long-term asset. Things like buildings or equipment are Capital Expenditure. The cost is then charged to depreciation expense over the useful life of the asset.

A Revenue Expenditure is an amount of money that’s expensed immediately – thereby being matched with revenues of the current accounting period. Routine repairs – or anything that doesn’t explicitly extend to life or improve an asset are revenue expenditures.

So keeping this in mind… Ongoing maintenance costs of a website are usually revenue expenses and deductible as incurred. The creation of a website, or a complete redesign is likely to be capital costs.

Website Research

But let’s not just consider the website itself, there are also research and planning costs. These are deductible in calculating a business’s taxable profits.

Individual costs could be thought of as marketing, advertising or IT, but it is necessary to also look at the combined impact. If something new and enduring has been created, then much of the cost is likely to be capital. HMRC uses the analogy of a window display: the cost of constructing the window is capital; the cost of changing the display from time to time is revenue.

That makes this whole website cost debate pretty clear for us!

Domain Names

There are also domain names to consider. The treatment of domain names will depend on their value, cost and likely endurance. Where significant, they should be treated as intellectual property. The tax treatment then depends on whether the business is operated through a company or is unincorporated.

If you’re unsure about any of this, please get in touch as we’ll be able to help. We also recommend taking The Quiz to find other tips on where you can improve your profits!

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