This is a complicated matter, and we advise that you get professional advice from a qualified accountant, bookkeeper, and/or solicitor as to his this applies to your business and website – the below should not be considered legal or financial advice, we are web designers, not solicitors, and CAN NOT advice you on your specific case.
Having said that, here is the general advice based on information available from HMRC as of July 2023.
HMRC’s general stance on websites and tax deductions
HMRC considers websites to be like a shop window – they put your business on display to potential customers.
HMRC used to consider that like the cost of a shop window, website development is not an everyday expenditure but a one-off capital cost. This type of expenditure is only usually allowable where it qualifies for capital allowances
To qualify for capital allowances, whatever you have spent money on must perform a function in your business.
Because a display is not a function this would mean that no tax deduction for website costs may have been allowed previously.
HMRC’s current view, as of July 2023, on claiming a tax deduction for a website
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 accepts 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 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.
Development costs for a replacement website for your business (even with the same domain name) may also be treated as expenditure qualifying for capital allowances.
Websites costs that aren’t treated as capital allowances, as of July 2023
Any expenditure which relates to ongoing website maintenance (for example updating content, changing product details and pricing) is deducted from your profits just like any other day-to-day running costs.
Some expenditure is difficult to categorise – for example initial research before proceeding with the development/redevelopment of your website. However, HMRC generally accepts that this expenditure qualifies as a tax deduction from your business profits.
Where your website is used just to advertise your business, again HMRC will allow these costs as a tax-deductible expense in your profit and loss account.
Finally, because the bookkeeping/accounting and tax treatment differs for website expenditure, it’s important you keep a detailed breakdown of costs so these can be allocated correctly for tax purposes.
The information on this page is for general guidance and is not legal or financial advice. If you need more details on your rights or legal or financial advice about what action to take, please contact an adviser or solicitor.