Having a website is almost as important as having business cards. The expense of design, development and launch of a website can be significant so it is worth understanding the rules around the accounting treat of websites because there are circumstances under which your website is considered a fixed asset. Treating your website as an asset means the cost is capitalised on the balance and depreciated over a number of years. This strengthens your balance sheet position and means the cost is set against your profit over a number of years rather than all at once.
What is a Fixed Asset?
A fixed asset is something which a business purchases for long term use to generate income rather than to sell onto customers. For example a manufacturing business buys equipment to make its product which it sells onto customers. In this example the equipment is a fixed asset.
Fixed assets generally have a useful life to a business – a period of time over which they can be used by the business before breaking, becoming obsolete or needing replacement. Therefore the cost of a fixed asset is normally written off over the number of years it will be in use for using the accounting adjustment called Depreciation.
Is a Website a Fixed Asset?
Websites tend to fall into two different categories – those that give general information about a business, what it does and its team or those websites that sell products online.
General Information Websites
Websites that offer general information about a business are not classed as a fixed asset because they do not directly contribute to generating income of a business, they are a form of marketing. Therefore the cost of the website must be expensed in full as and when it is paid for. An accountants website which tells you about the firm, their staff and an idea of their services would not be a fixed asset.
Websites that Sell
Websites that sell products to generate business income are considered a fixed asset. A website such as Ted Baker where you can buy clothes would be a fixed asset because it is a method of making sales to customers.
How to Determine the Fixed Asset Cost of Your Website
Once you have confirmed that your website is a fixed asset you can include all the costs of getting the website launched to determine the cost of the website to be treated as a fixed asset. This includes:
- Labour costs by web developers
Treatment on Ongoing Website Costs
Once you website is launched the ongoing costs of hosting, maintenance and product updates cannot be capitalised as a fixed asset. These costs would need to be expensed as they are incurred in the profit and loss account.