Prime Generic Domains the case for and against

So what’s the deal with having a really good domain name, does it make any difference at the start of a new website and is it really worth spending more than £10?

I’d say yes and in no small part with the help from Edwin’s brochure I’ll go through the main reasons you should get a domain that is as near to nailing your genre as you can afford.

Memorable: Having a short memorable domain is good for branding, driving recognition and recall, of the last 10 url’s you saw in advertising how many can you remember? will anyone notice or remember your domain name after it being mentioned? Domains like mobiles.co.uk are easily remembered and unlikely to be mis-spelt, short domains without hyphens like PCs.co.uk are excellent for recall, word of mouth and the *radio test. You don’t always remember who an advert was for but your more than likely to remember what the advert was for.

*Radio Test: If a consumer heard your domain in a radio advert how likely would they be to remember it and spell it correctly.

Credibility: Having a category killer domain gives instance credibility to you and your business, it builds immediate trust. When I initially started to send out emails to companies & manufactures to get on the press distribution lists for PCs & TVs I received a response from LG offering to send me any TV I wanted so that I could do a review. It could also be easily arranged for some of the PC manufacturers to send me full systems to test and Crucial memory were interested in sponsoring the site, I had not even put up a page when I was doing this but I was using an email address @pcs.co.uk

Trust: A good domain helps build trust with a consumer who is looking at spending money or buy services, would you rather enter your personal credit and financial details on loans.co.uk or get-cheap-loans-here.co.uk

Marketing: Visitors do not have to guess what your site is about, your products or service are described and introduced through your domain, you don’t really need to ask what the company does that has tyres.co.uk on the side of it’s van.

Traffic & SEO value: It’s widely accepted that having a keyword domain makes ranking for that term easier, much better to have links to your site with the name of the domain than too many keyword rich links that don’t match the domain as you could end up taking a hit florida style. The other added benefit can be type in traffic, domains like phones.co.uk and music.co.uk get traffic every day of the week from people typing it into their browser so you get off to a good start before you even have your first page created.

Create a long-term asset: Domains have continued to rise in value over the years, spending money on a domain name is a capital investment rather than a traditional marketing or advertising cost which can be an expense which soon passes in value once the money is spent.

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Most articles on generic domains only serve to give one side so I’ll try and play devils advocate a little as well and go through the negatives that come to mind:

Non deductible expense: Spending money on a valuable domain is a capital expense, therefore not tax deductible, if you make £20,000 profit and in the same year spend £20,000 on domain names you still have to pay tax on the £20,000 you earned. If/when you sold the domain you would pay capital gains tax on any profit but in the short term it hurts more!

Smaller market for end users: If you are buying a domain as an investment to sell for a profit you are narrowing your market, just like buying an expensive house when coming to sell – end users out there are not as plentiful, this means it can be harder to turn the asset back to liquid funds quickly without making a loss. Getting the right price can take a lot longer than cheaper properties with a larger market.

Expectations: Possibly a positive possibly a negative, either way when you spend a large amount on a domain name there is a certain expectation level that the site you create to go on it should live up to the name, there are plenty of examples of great domains purchased on the last 12 months for 5 and 6 figures that have sites on them that look like they were built by my 8 year old son.

Funding: Get funding for a domain purchase is something that is still pretty difficult, there are a few services such as digipawn offering interest only funding but most of them are expensive if you cannot repay the full capital amount within a few months, try walking into a bank and ask for a 25 year domain mortgage and you’ll see one confused bank manager.

DRS/UDRP: Large companies know the value of prime generic domains, some have found it an easier and better route to try and take the domain for free through a complaint process based on a copyright infringement rather than negotiate and buy the domain at a fair market value. There are factual cases where domain owners have lost very voluble domains to companies that claim rights over a seemingly generic domain. In a result that was later overturned the owner of myspace.co.uk who wanted £220,000 lost the domain even though it was registered years before the .com business came into existence.

About Scott Jones

Scott hails from the north east of Scotland and started earning online at the end of 2000 building websites for local businesses during which time he won an award from Lord Alan Sugar for Excellence in Enterprise. After having quite a bit of success with domaining Scott mainly runs educational evergreen websites which generate over 3 million visitors per month but is always on the lookout for a fresh thinking out of the box way to turn a buck. Follow on Twitter.

Comments

  1. “Spending money on a valuable domain is a capital expense, therefore not tax deductible”

    Are there any capital allowance categories that could be twisted to fit? Unfortunately tax code seems about 20 years behind in terms of its categories (e.g. into which category do Web hosting fees go on the tax return? “Other”?)..

    I guess the capital expense part of it is the “right” to use the domain, not the actual domain itself. That is, the annual renewal fees are regular expenses that you can claim on your tax return. The “right” is some sort of intangible property asset.

    • The renewal fees I put through but not the purchase fees unless it’s reg fee, your right in that I’m not sure the tax office has kept up to date in dealing with such items.

  2. It’s still possible to get good domain names cheaply. I used http://www.aboutloftconversions.co.uk for my loft conversion website, it’s a bit longer than I would like but at least it is easy to remember and doesn’t have problems with spelling.

    I bought the .com, .co.uk and net versions of a generic domain name about a year ago. It was an impluse buy as I liked the catchy name. At the time I liked the idea that as it was very generic I could put any type of website on it. However, one year later I still havn’t come up with any ideas!

  3. Scott,

    I’m having real issues finding a definitive answer whether or not domain names fall under the capital gains tax, etc. The first I heard of it was on Self Made Minds, but when I queried it with UK HMRC (i.e. tax office) on one of their tax courses, they said its an intangible asset and does not fall under the capital gains tax area.

    I’m registered as self-employed, not a Limited Company, however, I’m not sure that makes a difference.

    Dan

    Daniel Harrison’s last blog post..Page Rank Snobbery – The Beast Never Rests

    • I spoke to a tax advisor after being passed about a couple of times Dan and was told it may depend on the purpose of the purchase, if you buy it to sell it that may be seen differently if that was your business, however I was buying to lease out and buying to develop and told that therefore they would be capital items and to keep a note of them and treat them as capital gains if I sold later. I don’t think there is continuity in this area by the sounds of it.

      • I think that where the tax office is concerned, if you’re buying or selling a lot of domains and making good money from it (I’d say £500+), they’ll look more favourably if you’re declaring it as capital gains.

        However, I was told that categorically they’re not. My view is that it’s probably a grey area that will darken over time.

        Daniel Harrison’s last blog post..Page Rank Snobbery – The Beast Never Rests

  4. I’m glad that domains are tax deductible in my country 🙂

    On thing that I think you are missing from this Scott is that when you purchase a domain you need to compare it to what you’re planning to do with it. If you’re planning to build minisites or similar SMALL businesses you need not put as much weight (= money) on the perfect domain.

    On the other hand you’re absolutely right that if you’re planning to build a big business then the great domain is a must.

    Mikael’s last blog post..Posts You Can’t Afford To Miss

  5. I can imagine the conversation, I want a loan to buy a domain name, well when I say buy I mean lease but I would own it until I forgot to pay the renewal fee. But I can resale the domain name but actually I plan to sub lease it!

    I think the fact you don’t actually ever own a domain name means you can’t argue it as a life asset. While we may see it more like leaseholding in property the fact that the leases are such short periods make it hard to convince anyone they are a long term asset, leaseholds are normally for 99 years on a house 🙂 not 10.

    Tim Nash’s last blog post..Want advice on StumbleUpon?

  6. hmm. nice post and great information on choosing a good domain.

  7. I think the tax treatment will depend entirely on how you treat them. If you buy to hold while leasing then it will be a capital gain. However, if you buy with a view to a quick flip then you are trading and the domain name would be a deductible expense.

    This is pretty much the same as property developers, think of the different treatment between those that flip properties and those that buy and the rent them out.

  8. Hi all,

    I am an accountant who specialises in online businesses and hope you may find this post useful.

    Domain names:

    The purchase of a domain name is actually a licence to use that domain name until the next renewal date. So at its basic level of annual renewal, you have a licence to exclusively use the domain name for 12 months. This would mean that you can deduct the cost in your profit and loss account. If you have bought more than one year, then you have prepaid for the use and therefore in your accounts you enter the value of the prepaid fee as a current asset and write off the relevant amount for each year. i.e. if you have registered it for 3 years, write it off in the accounts equally over the 3 years. As your accounts will not coincide with the purchase dates of the domain names, I would suggest that you set up a spreadsheet to manage these.

    Websites:
    If you are buying to resell, then they are effectively stock and therefore only tax deductible when you sell them or decide to let the domain lapse at which point they will have no value. The part that represents the registration fee is written off as above. The sale will be a normal trading activity and not capital gains. Any income generated from them via adsense, parking revenues etc will be taxable as normal income.

    Website businesses:

    If you are buying a website that has its own income stream independent of your existing sites, then you are effectively buying a business. The business is made up of the domain name registration fee, cost of content (see below) and goodwill. Due to the minimal cost of the registration fee, in practice the purchase is usually treated as a purchase of an intangible asset (ie goodwill) and for a limited company, written off in its accounts over the expected life of the new business, usually up to 5 years. Under current UK tax law, the write-off is also tax deductible in line with the accounts treatment.

    This has been a good tax saving move for clients who have transferred their business into a limited company and taken advantage of the various capital gains tax reliefs available.

    If you are selling a website business i.e. a site that has an identifiable income stream, and your business is not buying and selling websites, then that would be a capital item and the relevant rules of capital gains tax (if you are not incorporated) and corporation tax (if you are a limited company) apply.

    Website development costs:
    The main guidance for UK accountants (UITF Abstract 29) was issued over 7 years ago, by the Accounting Standards Board (don’t laugh too loudly) Urgent Issues Task Force. The document is available at http://www.frc.org.uk/images/uploaded/documents/328.pdf if anyone is interested. It only applies to medium and large companies anyway so is irrelevant for most online businesses, and appears to be written to justify the accounts treatment of websites developed by high street retailers and large e-commerce companies.

    As you all know, a visitor is attracted to a website by its relevance and up to date nature. Therefore historic content is of minimal use and of negligible value. Consequently the costs of generating content can be written off as a cost in the business’ profit and loss account.

    I hope this helps

    Keith
    HRBS.biz

    • Hi Rob

      The accounts and tax treatment usually follows the intention behind the purchase and the nature of your business.

      What is the reason for the purpose? What is the domain to be used for? If it is bought to be resold at a later date then it is stock.

      eg if you buy a few domains, park them and later sell on, then this is a trade amd the domains are the stock.

      Keith

      Keith (aka hrbs)’s last blog post..Thinking of starting a business?

      • Hi Rob,
        What does the purchase agreement say? On the face of it you are buying a business ie domain + goodwill. Alternatively you could be buying a domain name and paying royalties/commissions to the vendor for the first year. If you want to provide some more details off this board contact me via tips.hrbs.biz .

        Keith

        Keith (aka hrbs)’s last blog post..Thinking of starting a business?

  9. Fantastic write-up Keith. Your advice is very much appreciated. Thank you.

    Daniel Harrison’s last blog post..Page Rank Snobbery – The Beast Never Rests

  10. Daniel – I’ve just read one of your posts which mentions picking up domains from companies that have gone bust – It will be interesting to see what Scott and Al see happening in the domain market over the next few months.

    It seems wrong to be like circling vultures, but there could be some very good buys to had over the next 6 months or so.

    PS – personally I already have more domains than I can handle so I’m not looking to increase my portfolio 🙂

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