Website Development costs and a claim for pre-registration VAT

Website Development costs and a claim for pre...

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I have been told by the National VAT Helpline that Website Development costs are services, so we can only claim back vat 6 months prior to the date of vat registration.

Is this correct? Can anyone explain why Website Development costs cannot be treated as goods ie allowing a claim for 3 years from the date of registration? This would seem to make more sense and follow GAAP treatment of capitalisation and amortisation?

Any comments are much appreciated.

Susan
Susan Kumar

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By theaardvark
06th Feb 2008 11:02

Revenue generating ≠ goods
Susan -

The copyright in a song can be an asset, generates revenue, has a useful life of many years and has a re-sale value (ask Michael Jackson, who owns, or at least used to, the copyright to most Beatles songs at the moment and has a number of loans secured against them, if the press are to be believed). None of these facts makes a song "goods".

Regards

Paul Taylor
Senior VAT Consultant
Dains

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By theaardvark
06th Feb 2008 10:46

See my earlier post
Nicholas - please see my earlier post. It's not so much that there is a difference, it's simply a matter of where HMRC have decided to draw the line.

The same issue arises with books (goods) versus digital books (services), CDs and Records (goods) versus MP3 downloads (services), paintings (goods) and digital images (services).

Regards,

Paul Taylor
Senior VAT Consultant
Dains

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By JasonLVC
05th Feb 2008 19:57

You can't change what a thing is no matter how much it is argued
When you buy a box containing software off the shelf - regardless of what the software is - you are buying GOODS. Just like if you bought a laptop from a shop. They are goods as it is a physcial object.

If you have someone repair your laptop it is a SERVICE, provided by a person. If you pay someone to develop a website then you are paying for their services of design and programming. The outcome (the website) is a result of the SERVICE provided by the developer.

There are no definitions in law of what a good is specifically as it is generally accepted that they are physical items whereas a service is something performed by a person or is intangible.

A website may be an asset in the accounts of a business, but VAT is always about SUPPLIES more than what something is. Have a look at my earlier posts. A software developer who writes the software provides a service of programming to the publisher or the customer who has requested the bespoke program. The publisher/customer takes the software and masters CD's of the program and sells them on the shelf. These are then goods which the customer buys and takes home.

To make something a good, then I suggest the customer buys an off the shelf package and develops their own website and they can claim the VAT on the software price. If they get someone in to use the software they've just bought to develop a website for them, then that element becomes a service.

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By carnmores
05th Feb 2008 18:00

i am not sure i understand the differnce if any
between 'boxed' software and a web design program in a box - can someone enlighten me

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By susankumar
05th Feb 2008 12:56

Any case law or statutory definition of goods?
Thank you for all your comments.

I have now recovered from crazy busy SA work load!

Is there any case law or a statutory definition of goods?

The owner of any internet trading business will agree their website is their main asset. It generates revenue, has a useful life of many years and also has a re-sale value. These all indicate the costs to develop a website used as a trading vehicle are goods.

Susan

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By theaardvark
25th Jan 2008 12:40

Software
JC - HMRC see a difference between "off the shelf" software bought on a physical medium (a supply of goods) and custom developed software, licensed software or software delivered electronically (a supply of services).

Website development does not result in any physical goods and cannot, therefore, be a supply of goods.

Regards

Paul Taylor
Senior VAT Consultant
Dains

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By User deleted
25th Jan 2008 11:38

Goods are goods, services are services.
Jc,

When I buy a computer game from PC World then I am buying goods, but the publisher of said game is buying in development services from the programmers company which is a service.

VAT is always about the transaction/nature of the supply, so in the OP's case, they have not purchased a CD disc with software on it, they have not purchased a server. They have purchased graphical art/design services and programming expertise from specialist programmers/authors who are going to create website content and host it on their server.

These are services they have purchased. Server hosting is also a service. In that example, they are not buying a server, they are renting capacity on it, and rent is a service too....

Some more examples - Advert in the paper, is that a supply of a good/newspaper or one of service/marketing...it is a service.

Some people buy and sell web names/host sites. These are vatable because although they are dealing with 'goods' the seller is actually providing their services' in facilitating the transaction.

Estate agents don't sell houses (goods), they sell facilitation and advisory services. I trust these examples show why web design, in the OP's case, is a service provision and not one of goods.

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By User deleted
25th Jan 2008 09:50

Programs are a tangible product ...
Interesting

Surely Web/programming development does give rise to a tangible product (a program which has a physical presence) - in the same way as any other manufacturing industry? This is demonstrated by the fact that the physical product can be picked up and moved from one place to another (server to server etc)

How does one distinguish between the labour/materials to create a Widget and the same labour/materials to create a program

For instance if a contractor was employed they would deliver a tangible product for loading onto the server and presumably charge VAT for the product - in the same way as Sage charges VAT

How the product is eventually used is another matter - i.e. sold, leased, rented etc.

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By User deleted
25th Jan 2008 08:15

It is a service
VAT is a seperate (indirect) tax to all the other company taxes and is ultimately governed by EU law so you can't compare how Inland Revenue side treat things and match that to the Customs side.

Web development is a service. It involves people providing their expertise and skills to develop a web portal. It is not the supply of a good as it has no physical presence so to speak.

Just an example of the oddity this can be which might make the situation clearer for you, building works (such as an extension or new build) are considered by the VATman to be a supply of services not of goods. Many traders find upon registration they cannot get such building work VAT back because of this definition of a service. So you could still capitalise the extension or building but you can't get the VAT back on the build costs as it is a service!.

So is the case with web development costs.

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By carnmores
24th Jan 2008 12:45

They want their cake and eat it

doubtless the Customs want it one way and the Revenue the other

i have read somewher that it depends on whether the website contains an online shop or not.

if it does not its a catalogue if it does its a quasi shop, so for accounting purposes the first would be wriotten off and the second capitalised

however it seems that the Customes want to vary that slightl

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