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The Accountants for Growth

How to treat website development costs in accounts

How to treat website development costs in accounts

The accounting treatment for the costs of building and maintaining your website depend on how you intend on using it.


If it is going to act as a brochure website where customers use the site to find out about your business and products but do not buy directly from the site, then you should put the development costs through the profit and loss account as an expense. Clients like this treatment as it reduces their taxable profits and therefore the business’ tax bills.


Where a business sells products or services directly through the website then accounting for the costs gets more complicated. Any planning costs can be shown as an expense in the profit and loss account but the actual design and development must be shown on the business’ balance sheet.


If we break down the costs of a web site into three parts:
 

1. Planning

2. Design

3. Content


If we have a brochure site then the costs are always shown as an expense in the profit and loss account. Where customers can buy from the site: - Number 1 is always shown as an expense in the profit and loss account and Numbers 2 & 3 are capitalised on the balance sheet. Content updated after the initial site construction can be shown as an expense since it is seen as maintenance. From a tax point of view, where development costs have been capitalised, the business should be able to claim capital allowances on the expenditure, so it’s not all bad news!

 


 

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