Domain names. Expenses??

[stender]

Is your wifes name Jack?

 

[retired_member16]

Is your wifes name Jack?

Only at the weekend.

 

[LSV]

Was debating about getting my text books out but can't be bothered, its been a long day.

I agree with Olebean on this.

Domain names would be treated in the same way as brand names and held as an asset if bought at reg fee they should just be expensed, irrelevent where they are expensed to.

You can only capitalize and show as an asset on the balance sheet at the value you purchased them, you cannot show a domain increasing in value this is the same principle as brand names.

If held on the balance sheet they would be classed (in the books) as belonging to you rather than being rented by you because you hold the risk of ownership. For example you are entitled to renew them first and keep them or if the value drops you take the risk of losing money. This is substance over form principle.

So you are saying to treat domain names as an expense if it´s low amounts and for higher amounts it should be an asset (intangible). Why could I not treat a 50k domain name the same as a reg fee name and just write it off as an expense?

Quoting someone that I had a PM with:
" If you are trading as a soul trader, or ltd company then the purchase of your domain names should be offsettable against the income through 'trading'. This will be the income due to PPC. It is possible that the domain sales could be treated as income or as capital gains. however if the nature of your business is trading then will probably be the former.

ie, even though a toy company buys the bits for £1 and sells the toy for £10, they don't treat this as a capital gain, this is trading."

Opinions anyone??

 

[bb99]

As some of you know, as well as being a long serving Lieutenant in LAPD's Homicide Department, I'm also a Chartered Accountant. I'm no longer in practice and my knowledge in this area isn't as up to date as it could be but I would say the following.......... I'm just raising some of the issues rather than giving answers or advice. All of what I've said below assumes you're a limited company.

a) If you're company does non-domain based stuff, it doesn't really matter what you do with your domain name invoice. Expense it, capitalise it over the registration period, hide it under the floorboards, feed it to the dog, whatever. In the scheme of things, paying (eg) £20 per year for a domain name will be completely immaterial - even in small companies.

b) If your prime aim is to buy and sell domain names and that's how you intend to make money then you could put your domains into stock, ie current assets. Any parking revenue that you make you would put through turnover. Remember though, stock must be valued on your balance sheet at the lower of cost or net realisable value. So you may need to justify those year end values to your accountant/auditor (or the tax man). How can you do that? Maybe with an independent appraisal. Or maybe you've had several offers from independent 3rd parties. When you sell a domain name, you move the stock into cost of sales and you take the revenue as turnover. So you don't make any profit until you sell the domain name (save for the parking revenue).

c) If you buy websites and domain names together, this is a bit different. Because you're buying a "business". Some of that money may be for the domain name, some may be for the site/code/infrastructure and some may be goodwill. You would need to be able to show your accountant/auditor (or the tax man) how to split up those things within the money you paid and deal with them accordingly. Things can then start getting really messy when you start selling them . There will also be fun and games at the end of each year when you have to justify the year end balances to your accountant/auditor.

d) If you buy domains as long term investments and aim to live off the parking in the mean time then you might want to put them on your balance sheet as intangible assets. And you'd then take the parking revenue as turnover. This can be quite complex and you may have to jump through all sorts of hoops for your accountant and the tax man - especially if the numbers start to get quite big.

e) If you do a combination of (b), (c) and (d) then you'll need an accountant with very sharp pencils



It may be that there's established history as to what to do in these cases and there may be established tax case law - but to be honest I'm not aware of it. I doubt there is established case law either because the numbers, to date, won't really have been big enough for the tax man to get excited about. Now .uk domains are beginning to get biggish sales, this may change.

If you take away anything from this post, take away these two things:

1. If you can afford to spend £80k on domain names, you can afford to get some proper advice. Most accountants would happily meet with you for nothing to initially discuss your options and give you some pointers. They would also be able to discuss the best vehicle to use and advise on how to best get money out of the company specific to your personal tax circumstances.

2. This is not advice, these are not answers, it's just food for thought. In fact most of it is probably wrong. But I had fun writing it

3. What any company does with a domain is really down to their specific circumstances. I've only covered a few. There's a lot of variables to play with. So always get proper advice.