Domain Names - are they assets?

[dcarlisle]

If you register a domain name (£5+vat for 2 years) and someone pays you £500+VAT to give it to them ... where does that go on your tax return?

Any help would be appreciated.

Thanks
David

 

[elaine@cheapaccounting]

What you pay is a cost and what you receive is income - simple!

 

[dcarlisle]

Then what are the asset/capital sales boxes for? Does everyone leave them blank?

 

[elaine@cheapaccounting]

Then what are the asset/capital sales boxes for? Does everyone leave them blank?

No - they are filled in if you have some assets.

A £5 domain is not an asset.

A car or a machine is an asset

 

[dcarlisle]

I decided to phone the HMRC. (I originally didn't want to because last time I phoned up with a question I got a "random" audit two weeks later which took up three weeks of my life!).

They said domains are like after-market number plates = assets. I take it you disagree then?

 

[Zeno]

I decided to phone the HMRC. (I originally didn't want to because last time I phoned up with a question I got a "random" audit two weeks later which took up three weeks of my life!).

They said domains are like after-market number plates = assets. I take it you disagree then?

Very technically it may be an asset but then so is a hole punch or a stapler - these items meet the definition of fixed assets too but we don't call them as such on grounds of materiality.

I could complicate this even further but lifes too short so do as Elaine.

 

[elaine@cheapaccounting]

Given a domain name is renewed after one year (maybe two) then the most it can have it a useful life of one (or two years) and the price paid is written off over that useful life.

In any case £5 is not an asset!!!

But I am sure that you will know better than me

 

[dcarlisle]

Aren't the taxes on income vs sold assets completely different?

If you sold a domain for £50,000 or £500,000 wouldn't you have been better off classing your domains as assets to begin with?

 

[elaine@cheapaccounting]

Sale of an asset in the accounts is still subject to income or corporation tax.

For example stock is an asset - you sell stock - you pay income or corporation tax on it.

You are muddling this up with CGT - so do some reading here:

http://www.hmrc.gov.uk/cgt/intro/basics.htm

 

[dcarlisle]

Okay, so even if you sell a car, trademark, licence plate, domain name or computer (and you end up making a profit on it) -- the taxation is all the same?

The only things that are taxed differently (when you're self-employed) are the "eco-friendly" stuff the government is pandering to and what farmers whinge about?

 

[dcarlisle]

Just read the CGT thing (thanks for the link) and I get the impression that I qualify for that. The domain was where I had my business website and it had a large amount of good-will attached - i.e. when I sold it nearly half my income stopped dead as everyone just started buying what the other guy was selling (he completely changed the website after buying the domain but due to incoming web links the traffic was still the same).

 

[Percybridge]

Unless you are trading as a domain name provider, your domain name will not form part of your taxable profit. It is a capital asset, as you say, rather like a trademark, licence etc.
You will be liable for capital gains tax on the profit you made on the sale of the name.
However, unless you have disposed of other assets, then you will pay no CGT as the disposal is covered by your annual exemption.
Even if you have disposed of other assets, given that this is a business asset, and you appear to be disposing of part of your business (ie the income stream) then it is likely you will also qualify for entrepreneur's relief which reduces your effective gain to 10%.

 

[Percybridge]

I should also have said that where an asset, albeit an intangible asset such as yours qualifies for Capital Allowances, regardless of whether or not they have been claimed, then if both the proceeds and the cost is less than £6,000, then the amount is exempt.
This is a bit like the stapler, that Zeno mentioned.
Strictly speaking the stapler qualifies for capital allowances, but because of the immateriality, you would not claim capital allowances. However, if you had bought the stapler and now found out it was worth £20,000 then you will be liable for CGT. This would not be expempt as the disposal proceeds are greater than £6,000.
The domain name, as HMRC have said is a capital asset. You could have claimed capital allowances on it. It is a capital gain.

 

[dcarlisle]

Thanks very much. I thought I'd ask the question now as I plan on getting off the online business and have many other domains to sell off. If there was some way I was supposed to be handling the transaction(s) then I figured now would be the time to ask.

Just a quick extra question ... do you charge VAT on domain sales then if you're going to be pushing them through capital gains?

 

[Percybridge]

If you have "many other domain names to sell off", then it is almost certain that you will be regarded as trading in domain names.
See Rutledge v CIR and Martin v Lowry.
These are not a capital gains.
You will charge VAT as normal on the sale.
If you imagine two firms, one firm buying houses then renovating them and selling them. Any profit would be trading profit.
The other firm buys houses and rents them out. Sells same houses at a profit. Not trading. This is a capital gain.
If you are buying a number of domain names (more than you would use yourself - see Rutledge buying toilet paper) and selling them you are trading.
However, you may be able to argue that the first sale is a capital gain if you were using it to trade through. ie you had a substantial income stream through it.

 

[memejerommel]

No - they are filled in if you have some assets.

A £5 domain is not an asset.

A car or a machine is an asset

Does the domain £5 is not a capital?

 

[David Griffiths]

I decided to phone the HMRC.

Do you have any idea of the probability of correct correct advice on a technical matter from telephoning HMRC?