What are the rules on Tax deductions and advertising? Part 1

August 4, 2020

Most expenditure of an advertising nature incurred for the purposes of the business is deductible.

This includes things like:

  • Placing an ad in the Yellow pages or something similar
  • Advertising goods or services in a trade or specialty magazine
  • Advertising for staff
  • Radio, television and Internet Advertising

There are, however, some special rules covering sponsorship, promotional events and gifts and samples. We’ll look at those over the next few articles. To start with, let’s look at Promotional Events.

 

Promotional Events

Expenditure on events held for the purposes of promoting or developing a business is allowable to the extent that it does not represent business entertainment. Let’s look at an example

SnazzyCompany Ltd is holding an event to mark the company’s birthday, at which is will launch a number of new products. It’s hiring a venue to make its intended presentation of the new products and provide catering for the 100 attendees. This will cost £1200 (VAT inclusive) for the venue and facilities and £240 (VAT inclusive) for the catering. A pretty good deal!

 

It’s also hiring the services of a string quarter at a cost of £480 (VAT inclusive).

 

Overall, the event is for the purposes of promoting the business, but the expenditure on catering and the string quarter is for the purposes of business entertainment and is not deductible expenditure. Neither i the input VAT on these items recoverable.

 

Input VAT of £200 can be recovered on the hire of the venue and facilities and the net £1000 cost is an expense that is deductible in the company’s taxable profits.

HMRC’s internal manuals also say that, for the purposes of calculating taxable business profits, expenditure on such an event can be deducted in full where the entertainment element is minimal. They give the example of an author’s book launch where there is moderate provision of food and wine.

 

Check back soon for more tips on how to save on your taxes!

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