- If you're a solopreneur
or business with an online presence
whether it be e-commerce or any other kind of trade,
there's no doubt you will want
if not already have a website.
So what's actually is for the costs relating to designing,
creating, and maintaining a website, software
or e-commerce development.
In this video, we will cover how much could it cost
to develop and maintain a website,
the different types of costs you could incur,
capital or revenue,
how website costs can reduce your tax bill.
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Your website can be compared to a shop window.
There are costs of constructing the shop window
from scratch, i.e. the website.
There is a cost of changing the display from time to time.
There's a cost of maintaining the shop windows
such as cleaning and repairs.
With websites, you will have the additional cost of hosting
and other relevant costs.
Now the cost of building and maintaining a website
can vary wildly.
And there's certainly more qualified experts out there
on YouTube who have a better insight,
one of which we recommend by clicking on the card above.
Although the presenter is from the US
and speaks in US Dollars,
the principle is applicable across the world,
and you can perhaps just convert these prices
into your own local currency.
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Whether you are self-employed
or operating through a limited company or LLP entity,
fundamentally website costs are either classified as capital
or revenue.
Let me explain going back to our shop window analogy.
There are costs of constructing the shop window
from scratch, i.e the website,
and that is considered as a capital cost.
But why?
Generally, if the website costs
create an asset of enduring benefit,
which basically means a website has a useful life
of at least two years.
Revenue costs are typically maintenance,
routine updates or any type of costs
that does not create an enduring benefit.
Typically if your website does not generate revenues
and is for example, just an informational site,
then it can be classified as revenue.
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Now that you understand the basic difference
between a capital and revenue cost in relation to websites,
what are the tax benefits available to you,
the business owner?
Well, let's illustrate this with an example.
Jim runs an e-commerce business here in the UK
and sells goods all over the world via his website.
Jim operates through a limited company
and his website planning, build and functionality
cost him £20,000 in total.
Jim pays £20 per month for hosting his website,
£50 per month for a maintenance contract,
and another £50 per month
for certain web-related subscriptions.
His website is considered to provide an enduring benefit
and therefore is classified as a capital expenditure.
So the £20,000 is a capital expense
and therefore goes onto Jim's balance sheet
as an intangible asset.
From a tax perspective, these costs qualify
for what is known as capital allowances,
under section 71 of the Capital Allowances Act of 2001.
So Jim's limited company
can claim 100% annual investment allowance.
In other words, the company will receive 19% of the £20,000
in corporation tax relief,
which equals £3,800 off his corporation tax bill.
For the hosting costs of £20 per month,
and the £50 per month maintenance contracts,
these are considered revenue expenses
and are booked straight to the Income Statement.
Corporation tax relief for 19% as things currently stand
is receivable for Jim's company on these expenses.
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I hope this video has helped you to understand
how you can get tax relief from website costs,
and taking you one step closer to knowing your numbers.
As always, let us know in the comments
your thoughts on today's video,
or if there are any topics you'd like us to cover
in the future.
Finally, be sure to like and subscribe,
as it really does help us to get our content out there.
This is Tony Dhanjal for the Accounting & Tax Academy.
Thanks for tuning in.
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