dc42 you are my hero, after much faffing about I realised that what I thought was an error was actually it blinking back to me... it's been a long night!
So I got it to work in the end by programming the Arduino with the ArduinoISP sketch, connecting up all the correct ICSP as before then putting the capacitor over the reset and then selecting programmer as Arduino as ISP, then doing what you suggested and just clicking on upload using programmer.
I've tried it with a few different options and it works fine so this is the solution, using the program as it was intended still doesn't work but I don't care so long as I can program 
Thank you so much for taking the time to help an idiot in need, it is very much appreciated!
If I knew where you lived i'd buy you a beer, you've just saved me hours of trying to learn avr studio, I can now get on with finishing the board!