Marketing spend is usually deductible, but not everything a business calls marketing is advertising for tax and VAT purposes. Client hospitality, gifts and a new website all sit near the marketing budget, and each has its own rules. A few well-chosen accounts save a lot of year-end analysis.
A practical set of accounts
| Account | What goes in it |
|---|---|
| Online advertising | search, social and marketplace ads, pay-per-click |
| Print and outdoor advertising | leaflets, directories, posters, trade press |
| Marketing services | agencies, freelancers, photography, copywriting |
| Trade shows and sponsorship | stand fees, event sponsorship, exhibition travel coded separately |
| Promotional items and samples | branded goods, samples given away |
| Client entertaining | kept separate, never mixed with advertising |
Entertaining and gifts are not advertising
Client entertaining (meals, drinks, tickets for customers or suppliers) is not deductible for corporation tax or income tax, and input VAT on it cannot be reclaimed. If it is coded to a marketing account, the tax computation will be wrong unless someone finds it later.
Gifts to customers are only deductible if they carry a conspicuous advertisement for the business, cost no more than £50 per recipient in a year, and are not food, drink, tobacco or vouchers exchangeable for goods. Gifts that fail the test go to a non-deductible account. Samples of the business’s own products given to potential customers are a normal selling cost.
VAT on online advertising
Many ad platforms invoice UK businesses from an entity outside the UK. When a VAT-registered UK business buys these services from an overseas supplier, the reverse charge applies: the business accounts for output VAT on the ad spend and reclaims the same amount as input VAT, so the net cost is usually nil but both boxes on the return must be completed. Some platforms invoice through a UK company and charge UK VAT instead. Check the invoice entity and VAT number on each platform’s monthly receipt rather than assuming; the mechanics are covered in reverse charge VAT.
Example: a month of ad spend
An online retailer spends £2,000 on ads billed by an Irish entity and £600 plus £120 VAT with a UK design agency.
| Account | Debit | Credit |
|---|---|---|
| Online advertising | £2,000 | |
| Input VAT (reverse charge) | £400 | |
| Output VAT (reverse charge) | £400 | |
| Marketing services | £600 | |
| Input VAT | £120 | |
| Bank and card clearing | £2,720 |
Websites: capital or revenue
The cost of building a new website that will generate revenue for several years can be capitalised as an asset and amortised; ongoing updates, hosting, SEO work and content are revenue costs. Small businesses often expense smaller site builds under their capitalisation policy, which is fine if the policy is applied consistently. See the capitalisation policy for fixed assets.
Measuring what marketing achieves
Tag each invoice with a campaign or channel (tracking category) rather than opening a nominal account for every campaign. Accounts show what kind of cost it is; tracking shows which campaign it served. That keeps the chart small and the reporting useful, especially if management accounts compare cost per customer by channel.
Prepaid campaigns and annual directory listings should be spread over the period they cover through prepayments.