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AIA - do I have to use all allowances

AIA - do I have to use all allowances

Hi

I have a client who has made a profit of £4,500 (first year of trading), he has purchased (had made) a website where he sells services, the website has cost him £9,000.  First of all, can he get capital allowances from the purchase of the website (non tangible asset) however he does take sales through it and if yes, does he have to use all of the AIA (£9,000) i would use all allowances and carry a loss forward to use at first available opportunity but just wanted clarification.

many Thanks

Andrea

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By BKD
22nd Jan 2013 13:14

Yes

and no, respectively.

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22nd Jan 2013 13:54

Agree with BKD but if you need more detail ...

The following para is from HMRC's Capital v Revenue Expenditure "toolkit" (at para. 13):

"If the function of the website is solely to advertise or promote the business then the development costs represent revenue expenditure. But if the website includes the ability to carry out electronic transactions that will directly generate sales or other income, 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."

As regards claiming only part of the cost, see CAA 2001, s. 51A(7):

"A person may claim an annual investment allowance in respect of all the AIA qualifying expenditure in respect of which the person is entitled to an allowance, or in respect of only some of it."

Thanks (1)
23rd Jan 2013 10:40

Just to add...

... to Ray's and BKD's responses, HMRC's toolkit is consistent with the relevant accounting pronouncements, UITF 29 under UK GAAP (which you don't need to follow if you're using the FRSSE or for a non-corporate, but it's probably advisable) and SIC 32 under IFRS.

HMRC ought to accept the position if the relevant accounting pronouncement is followed, because S.25 ITTOIA 2005 and S.46 CTA 2009 say so.

Under UK GAAP, capitalised website costs are treated as a tangible asset, but under IFRS they are treated as an intangible and you would need to elect out of the intangibles regime in order to claim capital allowances. I imagine that you're not applying IFRS though.

HMRC's toolkit does refer to BIM35870 which contains their outdated shop window analogy and which conflicts with the toolkit, that now accords with the proper accounting treatment.

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