When are advertising expenses deducted?

Discussion in 'Accounts & Finance' started by Digimem, Oct 10, 2020.

  1. Digimem

    Digimem UKBF Regular Free Member

    147 4
    Hello all, this may be a strange question but I can't seem to wrap my head around this one.

    Using a hypothetical example: a Limited company spending £1000 on Facebook ads which results £3000 in sales. Lets also assume there is a 50% gross margin.

    Which scenario below is correct, if either of them are?

    a) £3000 sales minus the £1000 advertising expense = £2000.
    And then £2000 x 50% margin = gross profit of £1000


    b) £3000 sales x 50% gross margin = £1500.
    Then £1500 sales minus the £1000 advertising expense
    Which would leave gross profit of £500

    At what stage are advertising expenses claimable/deducted from tax liability?

    Hope this makes sense!
    Many thanks
    Last edited: Oct 10, 2020
    Posted: Oct 10, 2020 By: Digimem Member since: Apr 20, 2017
  2. STK Finance Limited

    STK Finance Limited UKBF Newcomer Free Member

    21 3
    Advertising expenses do not normally get deducted from your gross margin... they are normally analysed in admin costs...
    what are you selling?
    Posted: Oct 10, 2020 By: STK Finance Limited Member since: Sep 25, 2020
  3. Mr D

    Mr D UKBF Legend Free Member

    24,866 3,030
    Advertising can go on through the year and may not be known exactly what any one amount of money spent has led to what items sold.

    You advertise on facebook and 6 months later I buy from your website. How do you figure the ad was responsible when there's nothing linking?
    Posted: Oct 10, 2020 By: Mr D Member since: Feb 12, 2017
  4. MyAccountantOnline

    MyAccountantOnline UKBF Legend Full Member

    13,257 2,486
    Accounts for a limited company have to be prepared using what's called the accruals basis so they include all expenses incurred, including advertising costs, in the accounting period they relate to. If you have an invoice dated in the accounting period and the costs invoiced relate to that period they are included regardless of when they are paid.

    As someone else mentioned advertising costs are generally overhead costs which reduce net, not gross, profit.
    Posted: Oct 12, 2020 By: MyAccountantOnline Member since: Sep 24, 2008