Are Websites Tax Deductible?
What we’ll teach you:
What qualifies as tax deductible?
Are websites tax deductible?
Are there any caveats?
How this saves you money!
What does “tax deductible” mean and what can qualify?
Incase you’re unsure about what "tax deductible" means (don’t worry, we’ve all been there), here’s a quick overview. An expense that is “tax deductible” means that it can be included as part of the calculation of your tax bill, therefore it can lower the amount of tax you have to pay.
Most running costs of a business are tax deductible, but they must have a legitimate purpose within your business, for example, office costs, staff costs, stock etc, are all classed as legitimately necessary, therefore can be written-off. However, not all business expenses are classed as tax deductible, for example, entertaining your clients, paying fines or penalties, or personal purchases.
So, does this mean websites are tax deductible?
The short answer is yes - websites are tax deducible, but they haven’t always been - let’s discuss why. Previously HMRC likened a website to a shop window stating that something that displays your business to a customer isn’t a function of it, meaning that they didn’t deem the cost of a website as an expenditure, instead a capital expense - therefore not tax deductible.
Luckily, HMRC have revised their perspective on websites, now deeming them a core function in most businesses to advertise, sell products or services and communicate with their customers. This means that you can now write the cost of your website off as tax deductible under the ‘Plant and Machinery’ sector!
By “cost of a website”, do we mean every possible cost?
For the most part, any cost you encounter during the process of creating a website is tax deductible. To break this down further, here are some examples of costs that may occur within the website process that you can class as tax deductible:
Domain Name Purchase: If you spent a shiny dime on the most popular domain name for your business, it's deductible.
Hardware and Operating Software: Any physical items such as computers or servers and software such as databases, automations and third party add-ons that enable your site’s core functions can also be claimed.
Website Building Costs: All costs incurred in the making of your site such as development, design, videography & photography etc, are seen as a business asset, therefore can be written off too.
Are there any caveats?
There are some website-related expenses that do not count as tax deductible such as an ongoing maintenance contract. While you can’t claim this under the AIA, you can still deduct these costs from your profits in the same way you would any other business expense.
There are also some grey areas when it comes to costs allocated to market research and initial analysis you may undertake before the website project starts, but if they are justifiably necessary to your business then you can still claim them from your business profits.
This saves you money!
Being able to write the cost of a website off against your tax bill means that you’re investing in your digital presence, inevitably making you more money while at the same time saving money by deducting the cost of the website against your taxable income meaning you pay less tax - winner!
Another winner? There is no limit tot he amount of times you are allowed to invest in your website and deduct the cost from your tax bill which means that if in a few months you fancy adding an extra feature or two, or perhaps in a few years you’d like a fresh new look to stay up-to-date with digital trends - you can write these expenses off too - winner, winner!
Want to learn more?
We know that business accounting can be confusing, so it’s always best to seek professional advice if you’re unsure. There’s also some great resources that talk about this in more detail. We’ll pop some links below!
https://www.gov.uk/capital-allowances
https://www.youtube.com/watch?v=sKuSKBMOCLs
https://www.youtube.com/watch?v=E3-slB3F9Z4
https://howladerandco.com/blog/tax-and-accounting-treatment-for-website-development-costs/
