When it comes to website development, the cost of the hardware and purchased commercial software is governed by standard rules for depreciable equipment. On the other hand, the creation of a completely new website or the addition of significant new functionality to an existing website will be included in capital expenditures. Generally, the cost incurred for creating, designing, developing, and programming a website will be treated as a capital asset. From an accounting perspective, the question is whether the costs associated with developing a custom website should be recorded as a current expense or capitalized as an asset and amortized.
In view of the lack of guidance from FRS 102, it is conceivable that some entities would classify software and website development costs as intangible assets, whereas under current UK GAAP they would have been classified as tangible assets. Many small business owners prefer to outsource website development to custom software developers. Accounting for the costs of website development requires strategic decision-making and can involve a number of factors. If you opt for the position that your website is primarily advertising, you can currently deduct the website's internal software development costs as an ordinary and necessary business expense.
When a company builds assets such as a website that require a period of time to prepare them for use and interest costs are incurred during that period, interest costs are capitalized as part of the cost of the asset. Typical maintenance costs would include updating web pages, correcting minor style or format problems, correcting errors or broken links, or making format changes consistent with font size, types and colors. The IRS hasn't issued any real guidance regarding specifically the costs of the website but has provided guidance on software costs. GAAP requires that some of the costs be spent and others be capitalized, depending on the stage of the website development project.
UITF 29 applies the above principles of FRS 10 to website development costs (not to website planning costs that cannot be capitalized) and requires that all of these costs be classified as tangible fixed assets. FRS 102 does not address the classification of software and website costs and, therefore, each entity must develop and apply an appropriate accounting policy to classify such costs as tangible fixed assets or intangible assets. Since there may be more assets classified as intangible fixed assets, it will be easier to follow the tax treatment from the accounts. So, if you expect your website to help you directly generate revenue in the coming years, you can consider it a fixed asset and include the cost of development in your balance sheet. The company can also purchase all the hardware needed to support the website when creating a new one or adding significant new functionality to an existing one.
These purchases will follow existing capitalization policies, will be included in the balance sheet and will be amortized.
