Websites, domains and UK tax
Websites, domains and UK tax
Domain names:
The purchase of a domain name is actually a licence to use that domain name until the next renewal date. So at its basic level of annual renewal, you have a licence to exclusively use the domain name for 12 months. This would mean that you can deduct the cost in your profit and loss account. If you have bought more than one year, then you have prepaid for the use and therefore in your accounts you enter the value of the prepaid fee as a current asset and write off the relevant amount for each year. i.e. if you have registered it for 3 years, write it off in the accounts equally over the 3 years. As your accounts will not coincide with the purchase dates of the domain names, I would suggest that you set up a spreadsheet to manage these.
Websites:
If you are buying to resell, then they are effectively stock and therefore only tax deductible when you sell them or decide to let the domain lapse at which point they will have no value. The part that represents the registration fee is written off as above. The sale will be a normal trading activity and not capital gains. Any income generated from them via adsense, parking revenues etc will be taxable as normal income.
Website businesses:
If you are buying a website that has its own income stream, then you are effectively buying a business. The business is made up of the domain name registration fee, cost of content (see below) and goodwill. Due to the minimal cost of the registration fee, in practice the purchase is usually treated as a purchase of an intangible asset (ie goodwill) and for a limited company, written off in its accounts over the expected life of the new business, usually up to 5 years. Under current UK tax law, the write-off is also tax deductible in line with the accounts treatment.
This has been a good tax saving move for clients who have transferred their business into a limited company and taken advantage of the various capital gains tax reliefs available.
If you are selling a website business i.e. a site that has an identifiable income stream, and your business is not buying and selling websites, then that would be a capital item and the relevant rules of capital gains tax (if you are not incorporated) and corporation tax (if you are a limited company).
Website development costs:
The main guidance for UK accountants (UITF Abstract 29) was issued over 7 years ago, by the Accounting Standards Board Urgent Issues Task Force. It only applies to medium and large companies so is irrelevant for most online businesses, and appears to be written to justify the accounts treatment of websites developed by high street retailers and large e-commerce companies.
As you all know, a visitor is attracted to a website by its relevance and up to date content. Therefore historic content is of minimal use and of negligible value. Consequently the costs of generating content can be written off as a cost in the business' profit and loss account.
Websites domains and UK tax - To learn more about this author, visit Keith Silman's Website.
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As an accountant who specialises in online businesses, I am often asked how are websites and domain costs treated for tax and accounting purposes.
Domain names:
The purchase of a domain name is actually a licence to use that domain name until the next renewal date. So at its basic level of annual renewal, you have a licence to exclusively use the domain name for 12 months. This would mean that you can deduct the cost in your profit and loss account. If you have bought more than one year, then you have prepaid for the use and therefore in your accounts you enter the value of the prepaid fee as a current asset and write off the relevant amount for each year. i.e. if you have registered it for 3 years, write it off in the accounts equally over the 3 years. As your accounts will not coincide with the purchase dates of the domain names, I would suggest that you set up a spreadsheet to manage these.
Websites:
If you are buying to resell, then they are effectively stock and therefore only tax deductible when you sell them or decide to let the domain lapse at which point they will have no value. The part that represents the registration fee is written off as above. The sale will be a normal trading activity and not capital gains. Any income generated from them via adsense, parking revenues etc will be taxable as normal income.
Website businesses:
If you are buying a website that has its own income stream, then you are effectively buying a business. The business is made up of the domain name registration fee, cost of content (see below) and goodwill. Due to the minimal cost of the registration fee, in practice the purchase is usually treated as a purchase of an intangible asset (ie goodwill) and for a limited company, written off in its accounts over the expected life of the new business, usually up to 5 years. Under current UK tax law, the write-off is also tax deductible in line with the accounts treatment.
This has been a good tax saving move for clients who have transferred their business into a limited company and taken advantage of the various capital gains tax reliefs available.
If you are selling a website business i.e. a site that has an identifiable income stream, and your business is not buying and selling websites, then that would be a capital item and the relevant rules of capital gains tax (if you are not incorporated) and corporation tax (if you are a limited company).
Website development costs:
The main guidance for UK accountants (UITF Abstract 29) was issued over 7 years ago, by the Accounting Standards Board Urgent Issues Task Force. It only applies to medium and large companies so is irrelevant for most online businesses, and appears to be written to justify the accounts treatment of websites developed by high street retailers and large e-commerce companies.
As you all know, a visitor is attracted to a website by its relevance and up to date content. Therefore historic content is of minimal use and of negligible value. Consequently the costs of generating content can be written off as a cost in the business' profit and loss account.
Websites domains and UK tax - To learn more about this author, visit Keith Silman's Website.
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