Marketing & advertising

Conditions

1. Sole traders: GOV.UK gives advertising in newspapers or directories, bulk mail advertising (mailshots) and website costs as examples of marketing costs you can claim. The underlying test is that no deduction is allowed for expenses not incurred wholly and exclusively for the purposes of the trade (section 34 ITTOIA 2005). The capital bar depends on how you work out your profits: under traditional accounting, no deduction is allowed for items of a capital nature (section 33 ITTOIA 2005), but on the cash basis, which GOV.UK calls the standard way for a sole trader, section 33 ITTOIA 2005 does not apply and section 33A ITTOIA 2005 governs capital spending instead (section 32A ITTOIA 2005) — see the cash-basis condition below.
2. Limited companies: the Corporation Tax rules set the wholly and exclusively test and the capital bar — section 54 CTA 2009 (wholly and exclusively) and section 53 CTA 2009 (capital). GOV.UK says some businesses cannot use cash basis, for example limited companies. GOV.UK's marketing examples are written for the self-employed, but the HMRC manual guidance below cites both Acts.
3. Purpose decides the claim, not the label. HMRC's manual says dual-purpose expenditure fails the test with no provision that allows a 'business' proportion, but where a definite part or proportion of an expense is wholly and exclusively for the trade, that part is not disallowed (BIM37007; BIM37600). It also says that describing expenditure as advertising is not determinative of whether it is capital or revenue (BIM35815).
4. Durable spending can be capital for a limited company, or a sole trader using traditional accounting. HMRC's manual says expenditure on the erection of permanent hoardings or other apparatus of a durable nature is disallowable as capital expenditure (BIM42550). Advertising to establish a market share for a new product or brand may be capital, although HMRC says that generally there is unlikely to be a strong case for making a capital argument (BIM35640). For a company, intangible assets within the Corporation Tax intangible fixed assets regime are normally taxed in line with their accounting treatment instead, so the capital/revenue divide has no effect for them (BIM35501).
5. Websites, for a limited company or a sole trader using traditional accounting: HMRC's manual compares a website to a shop window — the cost of constructing the window is capital, the cost of changing the display from time to time is revenue — and says the regular update costs of a site are likely to be revenue and the original cost of creation, capital (BIM35815). See website costs for the detail.
6. Sole traders on the cash basis: GOV.UK says cash basis accounting is the standard way to record your income and expenses if you're a sole trader, and that some businesses cannot use it, for example limited companies. On the cash basis, section 33 ITTOIA 2005 does not apply (section 32A ITTOIA 2005). Section 33A ITTOIA 2005 applies instead, and bars a deduction for an item of a capital nature only where it is incurred on, or in connection with, the acquisition or disposal of a business, education or training, or the provision, alteration or disposal of an asset that is not a depreciating asset, an asset not acquired or created for use on a continuing basis in the trade, a car, land (with a carve-out for some depreciating fixtures), a non-qualifying intangible asset or a financial asset. For equipment you keep to use in your business, GOV.UK says to claim allowable expenses if you use cash basis accounting and capital allowances if you use traditional accounting. Whether a particular sign, website build or brand project falls within one of the section 33A exclusions turns on the facts and on that section's own definitions, so take it to an accountant rather than assuming either way.
7. Sponsorship: HMRC's manual says sponsorship is often a form of advertising, and that sponsorship costs are allowable except where they are capital expenditure, not made wholly and exclusively for business purposes, or specifically disallowed, such as entertaining (BIM42555). Where a package includes hospitality, that element is disallowed, and a single sum paid for advertising and hospitality together is apportioned (BIM42560). HMRC says a non-business purpose may exist where the sponsored person is a relative or close friend of the owner or controlling director, or where they have a personal involvement in the sponsored activity (BIM42565).
8. Entertainment: the general rule is that no deduction is allowed for expenses incurred in providing entertainment or gifts in connection with the trade, and entertainment includes hospitality of any kind (section 45 ITTOIA 2005; section 1298 CTA 2009). HMRC's manual distinguishes two kinds of event (BIM45050). A promotional event arranged to publicise your products is not in itself business entertainment, but the cost of any food, drink or other hospitality provided as part of it is disallowable. Where publicity for your products is just one part of an event designed to provide hospitality for customers, journalists and so on, everything except the direct cost of publicising the products is disallowable: in HMRC's example of a golf day at which test drives are available, only the direct costs of the test drives and of any publicity material provided are not disallowed. HMRC also says that where any hospitality provided is minimal no disallowance need be made. Which kind of event yours is turns on its facts, so take it to an accountant if it is not clear. The statutory exceptions are entertainment of a kind it is your trade to provide, provided in the ordinary course of the trade for payment or free of charge to advertise to the public generally, and entertainment for your employees unless it is incidental to entertaining others (section 46 ITTOIA 2005; section 1299 CTA 2009).
9. Gifts are caught by the same general rule, with exceptions. The two that matter for marketing are a gift of an item it is your trade to provide, given away in the ordinary course of the trade to advertise to the public generally, such as free samples; and a gift incorporating a conspicuous advertisement for the business, unless it is food, drink, tobacco or a token or voucher exchangeable for goods, or its cost, together with any other gifts (except food, drink, tobacco or a token or voucher exchangeable for goods) given to the same person, exceeds £50 in the same tax year (sole traders) or accounting period (companies) (section 47 ITTOIA 2005; section 1300 CTA 2009). The other two exceptions, for gifts to your employees and gifts to charities and certain heritage bodies, are covered on branded merchandise.
10. Employees: there is no specific relief for advertising or marketing spend. An employee's general deduction is under section 336 ITEPA 2003, which HMRC calls very restrictive: all of its tests must be passed, including that the expense is one each and every holder of that employment would have to incur (EIM31630; EIM31640). If you do claim under section 336 for something only partly for your job, HMRC's employment manual allows a definite part that is wholly and exclusively for the duties to be deducted, but not an expense that serves another purpose at the same time, unless the other purpose is merely incidental (EIM31661). HMRC says the whole of an expense is deductible where any personal or private consequences are purely incidental, and that the principle should be applied carefully (EIM31664). Entertainment and gifts connected with the employer's business are separately barred for employees (section 356 ITEPA 2003), with exceptions in sections 357 and 358 ITEPA 2003 — see client and business entertainment and branded merchandise, and take advice before relying on one.

Common mistakes

• Treating a permanent sign or hoarding, or the original build of a website, as a running cost under traditional accounting or in a company — HMRC's manual treats durable advertising apparatus as capital, and says the original cost of creating a website is likely to be capital too (BIM42550; BIM35815). On the cash basis, sole traders apply section 33A ITTOIA 2005 instead.
• Putting client hospitality through the marketing budget. At a promotional event, the cost of any food, drink or other hospitality is disallowable even though the event itself is publicity. Where the event is designed to provide hospitality and publicity for your products is just one part of it, such as a client golf day with test drives, more is at stake: everything except the direct cost of publicising the products is disallowable (BIM45050). HMRC says no disallowance need be made where any hospitality provided is minimal (BIM45050).
• Claiming the whole of a sponsorship package that includes tickets or hospitality. The hospitality element is disallowed and a single payment is apportioned (BIM42560).
• Sponsoring a relative, a close friend or an activity you are personally involved in and assuming it is advertising — HMRC treats these as possible signs of a non-business purpose (BIM42565).
• Reading the promotional-gift limit as 'under £50'. The exclusion applies where the gift's cost, together with any other gifts to the same person other than food, drink, tobacco or a token or voucher exchangeable for goods, exceeds £50 in the period (section 47 ITTOIA 2005; section 1300 CTA 2009).

What to keep

• Invoices for advertising, design, printing and platform spend.
• For sponsorship, the contract and correspondence, and a record of how the sponsorship was meant to bring your business's name before its target audience — HMRC lists both among the evidence it looks for (BIM42565).
• For a package that mixes advertising and hospitality, a note of how the price splits between the two, for example from the prices the sponsored party charges for each element separately (BIM42560).

Real-world example

A new café runs a social media advertising campaign, prints flyers and hands out free coffees on its opening day. The campaign and the flyers are advertising for the business, so they are claimable as long as they pass the wholly and exclusively test (section 34 ITTOIA 2005). The coffees are also claimable: GOV.UK says you can claim food and drink that you usually sell and are giving away as promotional offers. The owner also takes two suppliers out to dinner to celebrate the launch. That is not claimable — GOV.UK says you cannot usually claim for food or drinks provided to clients, suppliers or customers.

Frequently asked