01 May
A Comprehensive Guide on Digital Assets & their Taxation
The Internet has taken the world by storm; the speed of its growth has been tremendous over the last decade. These days every business needs a website of some sort, an email address, a WhatsApp account or some kind of VoIP technology just to exist and survive as a business. The ease with which people can search for products using Google, buy goods with peace of mind using Amazon or even attend events using things such as Virtual technology proves that the world we live in is a digital one.
If you are thinking about starting a business, growing it, or just rebranding, then these are the key digital assets and their taxation treatment you will need:
- Funding: You need funding to cover basic costs such as setting up your company, or if you are thinking about rebranding then you might need more funds than what you would need for a basic setup.
- Online Accountants: If you are setting up, using an accountant especially an online accountant can make a huge difference, they will already have clients who would have done things you are thinking about and they will also have strong industry connections. Having worked with a large number of businesses they will have the expertise to advise you on key business matters and will be able to guide you in the right direction. The reason we emphasise on an online accountant over a traditional high street accountant is because an online accountant will help you digitise things, become more efficient and work in ways that will save you time and money.
- Online Presence: These days any customer you come across will search for you online before they buy from you, they will look at your website, your reviews, your branding; they might even do a check on companies house if you are a registered limited company. Having a strong presence online can mean the difference between being just a business or being a growing business. If you want to form a company but are unsure about how to do it, speak to an Accountant in London or use our company formation service. Did you know our Company Formation Service is completely free if you hire us as the accountants for your company?
Once you have acquired the key ingredients and created or purchased a website or other relevant software, you will need to make sure that you treat the costs and tax reliefs available to you correctly. Alternatively, if you have already selected an online accountant, you need to relax and work on growing your business while your accountants handle the tax claims and accounting treatments.
The treatment of the costs incurred in creating or enhancing a website can be tricky, over the last decade the Internet and its corresponding technology has taken over the entrepreneurial world by storm. New startups such as just-eat or uber have been set up as nothing but online platforms or software’s and have been acquired for billions of dollars with millions of dollars in revenue.
If your business is thinking about buying or creating a website you need to make sure you claim the relevant tax reliefs available to you, to help you control your cash flow and remain as a sustainable business. Speaking to a suitable personal tax accountant can help you make sure you are claiming the right costs in the correct way.
If you decide to purchase a website which has an expected life of 2 years, or if you have incurred costs to develop a website or added new features in it which will last 2 years, this means you have acquired an asset.
For the purpose of tax this means one of the following, which also depends on the accounting recognition:
- The asset will have to be capitalized as a tangible asset
- The asset will be capitalized as plant and machinery
- The cost will have to be taken off against the Profit and Loss as:
- R & D Expenditure
- Non-qualifying R&D Expenditure, maintenance and ongoing updates
Digital Asset’s Taxation Treatment as an Intangible Asset
Claim the amount amortized or you can decide to write down goodwill at a fixed rate through your Profit and Loss.
Plant and Machinery
There is an Annual Investment Allowance or Written Down Allowance which a Business is able to claim as tax relief on the capitalized value. Businesses also claim depreciation against the profit and loss however this is not allowable for tax purposes.
R&D Relief
R&D relief for costs incurred in the research and development of software can be claimed in the following circumstances:
- When the software being developed is the ultimate end product of the R&D project
- When the software being developed is part of a larger R&D project
- When the software is a sample or example test for the R&D project.
Clear House Accountants are specialist Tech Accountants in London who work with creative businesses across the UK. We help businesses formulate effective tax solutions and proper accounting methodologies to stay on the right side of HMRC. Our growth portal enables businesses to set a strong business foundation and accelerate their growth in multiple folds.
Author Bio
Anam has a degree in accounting from the Prestigious St John’s University, and works as a senior director in Clear House.
Before working in Clear House, Anam worked in various commercial roles, the last one being the VP Operations for a prestigious business organisation,working on improving the organisation’s operational efficiency, growth and high level client management.
Anam manages clients ranging from software companies to large property developers and managers. Notably, she recently worked with a large property development company building large scale developments in London and the surrounding area.