Working On The Internet - Our 3 Favourite Tax Saving Tips
Over 200,000 UK businesses sell things on eBay.
Of course, it's not just eBay businesses that are benefiting from the growth of the internet. Over 70% of UK adults now shop online. A total of £91 billion in online retail sales took place in 2013 - a 16% increase over the year before.
Therefore working on the internet is important for any business we meet, especially start-ups in Staffordshire.
What about the tax treatment of businesses involved in e-commerce or those that are just having an online presence?
There aren't any specific e-commerce tax laws as such, but there are a number of tax rules and tax savings that can apply to these types of business more than others.
What Is Working On The Internet?
These days, you can make a living online even if you don't have a website. Selling on eBay is an obvious example but other sites like Amazon also let you set up your own store and sell your wares to their many thousands of customers. There are no set up costs involved.
However if you do want a website for marketing your business, the question will be is the cost of developing the site tax deductible? These are the questions we will answer in this blog post.
Unfortunately, the position here is far from clear, as this is new and developing area of tax law. However, the general rule is that expenditure which creates an asset with ‘enduring benefit’ should be treated as capital expenditure. ‘Enduring benefit’ is generally taken to mean something with a useful life of more than two years.
Where you have a simple website used solely to advertise or your business, it should be acceptable to simply claim the development costs as they arise on the basis the website has no ‘enduring benefit’. Current accounting principles would support this view.
But, where the website is a fully functioning e-commerce store that directly generates income, you will generally need to treat it as a capital asset and the development costs will be treated as capital expenditure.
In accounting terms capital costs normally have to be depreciated over time and this will also be written off for tax purposes over many years.
BUT these days, thanks to the annual investment allowance, a lot of capital expenditure is fully tax deductible in year one. Hence, despite the uncertainty surrounding this issue, businesses should still be able to claim an immediate deduction for their website development costs.
Our 3 Top Tax Tips For Working On The Internet!
- If your annual spend on all fixed assets including technology is less than £500k, you can get a 100% deduction in the year the money was spent thanks to the Annual Investment Allowance.
- Once your website is up and running, the cost of maintaining and updating it (e.g. changing prices), including web hosting costs, should be classed as revenue spending and will be fully tax deductible.
- Domain Names It costs around £10 a year to register or renew a website domain name. This cost is generally tax deductible
Our 3 bonus working from home tips are:
- If you want to advertise your business online using Google Adwords or some other website then, like most advertising costs, the cost is fully tax deductible.
- when you sell online, you will inevitably incur a variety of charges: credit card transaction fees, commissions to resellers, listing fees, etc. All of these costs are deductible when calculating the taxable profits of your business.
- There are lots of great deals for business owners on eBay. To buy items here one solution is to set up a dedicated Paypal account for the business. Paypal is owned by eBay and most users use it to pay for items. Paypal charges relating to business purchases are tax deductible.
There is a small caveat with all these rules regarding working on the internet such as if you buy an existing domain names for large sums of money. These get treated as intangible assets and there is no tax relief for small businesses. Ask us for a review to see what is most appropriate course of action for your business if you are going to acquire some large website or internet assets.
Small additional caveat on the Annual Investment Allowance. This drops down to to £200,000 from 1 January 2016 and is reviewed annually in the Budget. Ask us for the latest values of the Annual Investment Allowance when making your capital expenditure plans on technology and other fixed assets, so as to ensure you are claiming the maximum you can.
Remember that many businesses working from home are also working on the internet. Our blog post from last week applies - make sure you are claiming all those benefits in this area too. Again, ask us for a review wether you are working on the internet in the UK or even abroad so you claim safely the maximum amount of tax deductions.
Our Working On The Internet Call To Action
If you know of any other great working on the internet tax tips that can be shared with our readers then let us know via the comments or through LinkedIn.
Don’t be shy about claiming or using your legitimate working on the internet expenses from the tax man. It is good for you, your bottom line and your business!
The PJW Call To Action
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Remember - Don’t Leave a TIP with the Taxman!