Under FRS 102 software that a piece of hardware cannot run without is part of that hardware and sits in property, plant and equipment; other software, and a website, is an intangible asset. Building costs can be capitalised only when they meet the development phase conditions in paragraph 18.8H, while planning, content written to promote the business, training and ongoing maintenance are expensed. Subscription software is usually a service, so set up costs are often expensed too.

Is software a tangible or intangible asset?

Paragraph 18.3B of FRS 102 deals with assets that combine physical and intangible elements. The business uses judgement to decide which element is more significant. Software without which a machine could not operate, and the operating system of a computer or mobile device, is an integral part of the hardware and is treated as property, plant and equipment under Section 17. Software that is not integral to the hardware is an intangible asset under Section 18.

So the firmware in a CNC machine is part of the machine, depreciated with it. An accounting package, a customer relationship management system or a bespoke booking app is an intangible, amortised separately even if it was bought with the laptops it runs on.

Is a website tangible or intangible?

FRS 102 has no section dealing specifically with websites. Under old UK GAAP, UITF Abstract 29 treated capitalised website costs as tangible fixed assets. HMRC’s Corporate Intangibles Research and Development Manual at CIRD25145 records that UITF 29 was withdrawn for periods beginning on or after 1 January 2015 when FRS 102 replaced it, and that this tangible treatment is not the case under FRS 102, FRS 105 or IFRS. A website is therefore treated as an intangible asset.

Where a standard is silent, paragraph 10.4 requires management to develop a policy giving relevant and reliable information, drawing first on FRS requirements dealing with similar issues (10.5), and paragraph 10.6 allows it also to consider IFRS. Section 18’s rules for internally generated intangibles are the obvious starting point. The IFRS interpretation on the point, SIC 32 Intangible Assets: Web Site Costs, reaches the same answer: a website developed internally is an internally generated intangible asset, recognised only if the business can show how it will generate probable future economic benefits, and a site developed solely or primarily to promote and advertise the business’s own products and services is expensed.

Which website costs can be capitalised?

Apply the research and development split in paragraphs 18.8A to 18.8H to each stage of the project:

  • Planning and choosing an approach. Evaluating suppliers, platforms and alternative designs resembles the research activities in paragraph 18.8G(d), formulating, evaluating and selecting possible alternatives. Expense it.
  • Building the site. Design, coding, integration with payment or stock systems and testing can be capitalised if all six conditions in paragraph 18.8H are met, including how the site will generate probable future economic benefits. A site that takes orders or bookings can show that more readily than a brochure site.
  • Promotional content. Paragraph 18.8C(d) requires advertising and promotional activities to be expensed, so marketing copy, photography for campaigns and launch promotion are not capitalised.
  • Running the site. Hosting, security updates, routine content changes and search engine work are day to day costs and are expensed.
  • Training staff to use the site is expensed under paragraph 18.8C(c).

A domain name bought from a third party is a separately acquired intangible, for which paragraph 18.7 treats the probability test as met.

What about software built for internal use?

The same development phase rules apply. For an internal system the fourth condition in paragraph 18.8H(d) is met by showing the usefulness of the asset rather than a market for it. Cost runs only from the date all six conditions are met (18.10A) and includes directly attributable costs such as developers’ employee costs and materials and services used (18.10B). Earlier spending stays expensed and cannot be reinstated (18.17). Capitalising is a policy choice under paragraph 18.8K that must be applied to all qualifying projects; see capitalising development costs.

Micro entities under FRS 105 cannot capitalise any internally generated intangible (paragraph 13.4), so in house website and software development is expensed. Bought software can still be recognised (13.3).

How are cloud subscriptions and set up costs treated?

Much business software is now provided as a service: the business pays for access to software the supplier runs and controls. The access fee is an operating expense spread over the subscription. The harder question is the cost of configuring or customising the supplier’s software.

FRS 102 does not address this, but under paragraph 10.6 many preparers look to the IFRS Interpretations Committee agenda decision of April 2021 on configuration or customisation costs in a cloud computing arrangement. It concluded that:

  • the customer usually does not recognise an intangible asset, because it does not control the software being configured;
  • an asset can arise where the work creates, for example, additional code the customer controls, which is then tested against the normal recognition criteria;
  • otherwise the costs are expensed when the services are received: when the work is done if the services are distinct, or over the access period if they are not separately identifiable from the access;
  • amounts paid in advance of the services are a prepayment.

FRS 102 paragraph 18.8D likewise allows a prepayment where payment is made before services are received.

How would common costs be treated?

Illustration only. A retailer spends £48,000 on a new online shop for a company applying FRS 102 with a policy of capitalising qualifying development.

Cost £ Treatment
Consultant reviewing three platforms 3,000 Expense: evaluating alternatives
Developer building and testing the shop and payment integration after approval 30,000 Capitalise as an intangible if all 18.8H conditions are met
Product photography and launch campaign 8,000 Expense: advertising and promotion
Staff training 2,000 Expense
First year hosting, paid upfront 5,000 Prepayment, expensed over the year

The £30,000 is amortised from launch over its expected useful life. If the business expects to rebuild the site within a few years, that shorter period is the useful life; the 10 year cap in paragraph 18.20 applies only where a reliable estimate cannot be made. Paragraph 18.22 requires straight line amortisation if the pattern of use cannot be determined reliably.

How does tax treat website and software costs?

For companies, the corporate intangibles regime generally follows the accounts. HMRC’s Business Income Manual at BIM35801 says the capital and revenue divide has no effect for software within the regime, and capital allowances are not available for rights within it. A company can elect under section 815 of the Corporation Tax Act 2009 to take capital expenditure on a particular item of software out of the regime and claim capital allowances instead; section 816 requires the election to specify the expenditure, be made in writing within 2 years of the end of the accounting period in which it was incurred, and it is irrevocable. Software accounted for as part of hardware stays in the capital allowances regime (CA23410). CIRD25145 adds that where a company claimed capital allowances on a website while UITF 29 applied, that expenditure stays outside the intangibles regime.

For sole traders and partnerships, section 71 of the Capital Allowances Act 2001 treats software as plant. BIM35815 compares a website to a shop window: building it is capital, while regular updates are likely to be revenue, and calling the cost advertising does not change that. See capital or revenue expenditure, capital allowances and the annual investment allowance.

What mistakes come up most often?

  • Treating a website as a tangible fixed asset, as under the withdrawn UITF 29.
  • Capitalising the whole invoice, including promotion, training and hosting.
  • Capitalising configuration of subscription software the business does not control.
  • Amortising a website over 10 years by default when it will be replaced much sooner.
  • Forgetting that the accounting answer drives a company’s tax relief unless a section 815 election is made in time.

The wider recognition rules are in FRS 102 Section 18: intangible assets.

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Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.