Client has spent £12,000 during the year having a website designed for his business.
We are certain that capital allowances may be claimed for this, but we are unsure as to whether 100% relief under AIA is available.
If AIA is not available what relief is.
We have searched the HMRC site but can not find any reference. If anybody can lead us to relevant page we would appreciate it.
We are very grateful for any advice given.
Many thanks,
Kind regards
Katarzyna
Replies (11)
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You won't find anything on HMRC website
that says specifically that website costs which qualify for CAs attracts AIA. As long as the expenditure isn't on integral features or other special categories of plant e.g. cars then AIA is available.
Are you sure, ken?
Hi Ken
Not that I think it's relevant to the question, but I was just wondering why you seem to think that AIA is not available on integral features? Or have I misunderstood you?
Another perspective
Would this not be covered by the Intangibles regime? And if so then surely the question of CAs is irrelevant.
Nope
Websites are treated as tangible fixed assets (if not expensed through the P&L).
And it is unlike Ken to be wrong, but AIA is available on integrals - hence the very basic tax planning to allocate AIA to integrals before main pool additions.
Capital or Revenue?
Before worrying about CA's, you also need to consider whether the costs for the construction of a website should be classified as capital or revenue expenditure.
HMRC guidance on this is at BIM35870, based on a comparison with the cost of a shop window (capital) and changing the display (revenue), but this is not very helpful and, in any case, accounting standards must be followed.
I'm not an accountant, but my understanding is that UITF29 states that only costs relating to websites that generate sales or revenue directly should be capitalised, as it regards these costs as part of a computer system. Accordingly it treats capitalised website costs as tangible assets in a similar way to computer hardware. Tangible assets will qualify for Capital Allowances in the normal way, including the AIA.
However, I believe that the International Accounting Standards (IAS38) requires such costs to be treated as intangible assets. Where the IAS applies to a company, the costs would therefore follow the intangibles rules in FA 2002, Sch 29 and be written off in the accounts as depreciated (or at 4% if an election is made).
The IAS rule to treat website costs as intangibles are overridden by s73A, FA 2002, Sch 29, where the costs have previously been included in a Capital Allowances claim. This is confirmed by HMRC guidance at CIRD25145.
So, I would first check if the costs can be written off as a revenue expense, before considering the CA's route. If there is not a direct sales facility on the site, this may be a better route to follow.
Web site - tangible v intangible
I agree with virtually everything in the last posting on this from Alan. You do need to see if the web site is more likely than not to increase cash flows. If it is just for information purposes then the cost should be expensed and as this is GAAP (under both UK GAAP and IFRS) it would be deductible for tax purposes too.
To clarify one part of Alan's post, if the client is using IFRS and capitalises the cost of the web site as an intangible I think that they can make an election to claim capital allowances rather than claim relief under the FA2002 Intangible Fixed Assets regime. This election is found at Sch 29 Para 83 FA2002 if I recall correctly.
Malcolm Greenbaum
Greenbaum Training & Consultancy Limited
my tuppenceworth........
Rebecca Cave wrote an article on Website treatment for tax in TaxAdvisor Magazine - May08 issue.
http://www.tax.org.uk/attach.pl/6801/7977/038-039_TA_0508.pdf
I think it answers the question
And I think AIAs are available.
Sorry ..
.. I hadn't meant to say AIA not due on integral features, just pondering why anyone would expect to find anything which says AIA due on website costs in particular. The query did say they were certain that CAs due so I just accepted that they had been through all the UITF 29 stuff. If the costs are correctly capitalised (as a tangible fixed asset) then it follows that CAs are due. I did consider though that in this case the UITF probably wouldn't make any difference because if the costs should have been written off to revenue then of course the HMRC view is that website design costs are like a shop window and should be disallowed as capital. However, the guidance makes no specific reference to UITF 29 and of course GAAP should be applied for tax unless there is any specific tax rule which says otherwise. I note that an edition of Tax Tips and Advice a year or so ago advocated claiming as revenue on the basis of GAAP. I tend to agree with that, but as I say it doesn't matter here unless IAS apply, because if you added back you'd claim 100% AIA anyway.
Website capitalisation
Here is an extract of a longer article, with most of the waffle already extracted! Let me know if you would like the longer version......
As there is often substantial uncertainty regarding the viability, useful economic
life and value of a website, the costs should be capitalised only to the extent that they are creating an enduring asset and there are reasonable grounds for supposing that future economic
benefits generated by the website will be in excess of the amounts capitalized.
If revenues that can be regarded as arising directly from the Website can include those
attributable to orders placed via the Website, or amounts paid by subscribers for access to
information contained on the Website or advertising revenues obtained by selling
advertising space on the Website, then this should qualify as an asset.
If a website is used only for advertising or promotion of the entity’s own products or services, it is unlikely to be possible to provide sufficient evidence to demonstrate that future sales or revenue will be generated directly by the website, then this should be expensed.
FAB Accounts
What if
the website shows the web designers' portfolio and viewing leads to contracts? Is it an intangible asset?