No. FRS 102 requires spending on advertising and promotional activities to be expensed and does not allow it to be carried forward as an asset, however long the campaign’s benefits are expected to last. The exceptions are a genuine prepayment, where the business has paid for goods or services it has not yet received, and stocks of promotional items held for free distribution, which are carried as inventory until handed out.

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Why can advertising not be carried forward?

Paragraph 18.8C of FRS 102 lists expenditure that must be recognised as an expense and not as an intangible asset, because there is no intangible asset that meets the recognition criteria or because the cost cannot be distinguished from the cost of developing the business as a whole. Item (d) on that list is advertising and promotional activities. Item (a) is internally generated brands, logos, publishing titles and customer lists, which is what successful advertising usually builds, and item (b) covers start up activities, including expenditure for launching new products or processes.

The same rule appears in Section 17: paragraph 17.11(b) says the costs of introducing a new product or service, including advertising and promotional activities, are not part of the cost of property, plant and equipment.

So the argument that a campaign in March will generate sales for the next two years, and should be matched against them, does not work under FRS 102. The benefits may be real, but the standard does not treat them as an asset the business controls. Spreading launch costs over the periods expected to benefit is not permitted either.

When is a prepayment allowed?

Paragraph 18.8D says the expense rule does not prevent a prepayment being recognised as an asset when payment for goods or services has been made before the goods are delivered or the services rendered. The question is therefore not when the advert will run or when it will produce sales, but when the business receives what it has paid for.

FRS 102 does not elaborate, and paragraph 10.6 allows management to consider IFRS for guidance on similar issues. IAS 38 paragraph 69A says services are received when they are performed by a supplier under a contract to deliver them, not when the business uses them, giving the example of using them to deliver an advertisement to customers. In practice that means:

  • Creative and production work is expensed when the agency completes it, even if the advert will not be shown until the next year.
  • Media space or airtime paid for in advance is a prepayment until the slots are delivered, because the media owner has not yet performed.
  • Sponsorship paid ahead of an event is a prepayment until the sponsored event or period takes place.
  • Retainers paid to an agency are expensed over the period the agency provides its services.

The general mechanics of prepayments are covered in accruals and prepayments explained.

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What about brochures, catalogues and branded giveaways?

Here FRS 102 differs from IFRS. Paragraph 18.8C(d) excludes from the expense rule anything that meets the definition of inventories held for distribution at no or nominal consideration. The glossary defines these as assets held for distribution at no or nominal consideration in the ordinary course of operations, or in production for such distribution, or materials and supplies consumed in doing so. Appendix III to FRS 102 confirms that this includes items such as advertising and promotional material.

Paragraph 13.4A measures such inventories at the lower of cost, adjusted for any loss of service potential, and replacement cost. Paragraph 13.20A requires the carrying amount to be expensed when they are distributed. A stock of printed catalogues or branded merchandise in the warehouse at the year end can therefore be carried forward until it is given away, but only at a value reduced for anything obsolete, such as brochures with out of date prices.

IFRS takes a stricter line. IAS 38 paragraph 69(c) lists advertising and promotional activities, including mail order catalogues, as expenses, and an IFRS Interpretations Committee agenda decision of September 2017 concluded that goods bought solely for promotional activities are expensed when the business owns them or has a right to access them, regardless of when they are distributed. A group reporting under IFRS cannot simply copy an FRS 102 subsidiary’s treatment.

What about signs, hoardings and websites?

Durable physical assets are a separate question. Permanent signage or an advertising hoarding the business owns is an item of property, plant and equipment, depreciated over its life. HMRC’s Business Income Manual at BIM42550 likewise treats expenditure on permanent hoardings or other durable apparatus as capital. A website can be partly capitalised as an intangible where it meets the development conditions, but content produced to promote the business is advertising and is expensed; see accounting for website and software development costs.

How does this work at a year end?

Illustration only. A retailer with a 31 December year end spends £30,000 on a spring campaign, all paid in December.

Item £ Treatment at 31 December
TV advert produced and delivered by the agency in November, to air from January 12,000 Expense in this year
Airtime booked for January to March 10,000 Prepayment, expensed as the slots air
Printed catalogues in stock, to be handed out free in spring 5,000 Inventory held for distribution, expensed when given out
Sponsorship of a February trade show 3,000 Prepayment until the show

Of the £30,000, £12,000 is charged in the current year and £18,000 is carried forward, but only because the business has either not yet received the services or still holds the goods. None of it is carried forward because of the sales the campaign is expected to generate.

Do micro entities and tax follow the same rules?

FRS 105 paragraph 13.5(e) requires micro entities to expense advertising and promotional activities, and its balance sheet formats include a line for prepayments and accrued income.

For tax, trading profits follow generally accepted accounting practice under section 46 of the Corporation Tax Act 2009 and section 25 of the Income Tax (Trading and Other Income) Act 2005, subject to adjustments required by law. The accounting treatment therefore normally fixes the timing of the deduction. Whether the cost is deductible at all depends on the usual rules on capital, business entertainment and the wholly and exclusively test, explained in advertising and marketing costs: what is allowable. Spending before trading starts is covered in pre trading expenses.

What mistakes come up most often?

  • Spreading a launch campaign over the periods expected to benefit, which paragraph 18.8C prohibits.
  • Treating agency production costs as a prepayment because the advert has not yet been shown.
  • Expensing airtime or sponsorship paid for in advance of the period it covers.
  • Carrying promotional stock at full cost when it is out of date or will not be used.
  • Capitalising brand development or rebranding costs as an intangible asset; see FRS 102 Section 18.

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Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 24 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.