HMRC internal manual

Business Income Manual

BIM35815 - Capital/revenue divide: computer software: costs of setting up a web site

Analogous to a shop window

The costs of bringing into existence an asset or advantage of enduring benefit to the trade are capital. You will need to establish if the web site has the lifetime normally expected of a capital asset - see Anglo-Persian Oil v Dale [1931] 16TC253 (BIM35505). The regular update costs of the site are likely to be revenue expenses and the original cost of creation, capital.

The taxpayer may describe the expenditure as advertising. Such description is not determinative, see for example Lord Morris’s remarks in Strick v Regent Oil Co Ltd [1965] 43TC1 (BIM35560) at pages 43 and 44:

‘…to call such sums marketing costs is merely to apply a neutral or generic description which in no way distinguishes between payments of a capital nature and payments of a revenue nature. Some marketing costs are of the one kind and some are of the other. It may become imperative for the purposes of effecting sales to acquire a building which is to be used solely for such purpose; the cost of acquiring the building would not be an expense of a revenue nature. What falls to be considered is the nature of that for which payment has been made.’

The cost of a web site is analogous to that of a shop window. The cost of constructing the window is capital; the cost of changing the display from time to time is revenue.