What is different about tax for a marketing agency
A typical small marketing, digital, social or creative agency is a limited company with one or two directors, a few employees and a bench of freelancers. The tax is mostly ordinary company tax, but four areas need particular care in an agency:
- Ad spend. Media bought from platforms that invoice from outside the UK can push an agency over the VAT registration threshold, and media you rebill to clients is usually part of your own supply for VAT.
- Freelancers. Every freelancer needs an employment status decision, and some of them bring IR35 with them.
- Overseas clients. Services to business clients abroad are normally outside the scope of UK VAT, but only if you hold the right evidence.
- R&D tax relief. It is heavily marketed to agencies, yet creative and marketing work does not qualify. Getting this wrong is expensive.
Limited company: a worked 2026/27 example
The usual way to pay yourself as an agency director is a small salary plus dividends. Salary and employer National Insurance reduce the company's taxable profit. Dividends do not, and they can only be paid out of available profits.
Take an agency with one director and one full-time employee, a 12-month accounting period inside 2026/27, no associated companies and figures shown before any workplace pension contributions:
| Item | Amount |
|---|---|
| Fee income (excluding VAT) | £180,000 |
| Freelancers | (£40,000) |
| Software and subscriptions | (£6,000) |
| Employee salary | (£30,000) |
| Director salary | (£12,570) |
| Employer National Insurance, after Employment Allowance | £0 |
| Taxable profit | £91,430 |
Employer National Insurance. Employer contributions are 15% above the £5,000 secondary threshold: (£30,000 minus £5,000) x 15% = £3,750 for the employee, and (£12,570 minus £5,000) x 15% = £1,135.50 for the director, a total of £4,885.50. Because the director is not the only employee, the company can claim the £10,500 Employment Allowance, which wipes out the whole bill.
Corporation Tax. Profit of £91,430 sits between £50,000 and £250,000, so marginal relief applies. Tax at the 25% main rate is £22,857.50. Marginal relief is 3/200 x (£250,000 minus £91,430) = £2,378.55. Corporation Tax is £22,857.50 minus £2,378.55 = £20,478.95, leaving £70,951.05 after tax.
Director's personal tax. The £12,570 salary uses the personal allowance and is below the £12,570 primary threshold, so there is no income tax or employee National Insurance on it. A dividend of £37,700 fills the rest of the basic rate band (£12,570 plus £37,700 = £50,270). The first £500 is covered by the dividend allowance and the remaining £37,200 is taxed at 10.75%: £3,999.
The director receives £50,270 and keeps £46,271 after personal tax. The company retains £33,251.05 (£70,951.05 minus £37,700). Any further dividend this year would be taxed at the 35.75% higher rate, so many directors leave profit in the company until a later year. Your accountant will model your own figures, including pensions and a second director.
A one-person consultancy can also trade as a sole trader. All profit is then taxed as yours, whether or not you draw it: income tax at 20%, 40% and 45% above the personal allowance, plus Class 4 National Insurance of 6% between £12,570 and £50,270 and 2% above. A company adds limited liability and lets you leave profit in the business at Corporation Tax rates. Our sole trader vs limited company calculator gives a quick comparison.
Allowable expenses for marketing agencies
Costs are deductible when they are incurred wholly and exclusively for the business. The items agencies ask about most:
| Cost | Treatment |
|---|---|
| Software and SaaS subscriptions (design, analytics, scheduling, CRM) | Allowable business expense |
| Laptops, monitors, cameras and studio kit | Capital allowances, normally covered in full by the £1 million Annual Investment Allowance |
| Freelancers and subcontractors | Allowable, once their employment status is settled |
| Staff salaries and employer National Insurance | Allowable |
| Media and ad spend bought for clients | Allowable as a cost of sales; the rebilled amount is income |
| Client lunches, drinks and events | Business entertainment: not deductible, and the VAT cannot normally be reclaimed |
| Branded gifts to clients | Allowable only if they carry a conspicuous advertisement, cost no more than £50 per recipient per year, and are not food, drink, tobacco or vouchers |
Our guide to allowable limited company expenses covers the wider list.
VAT: overseas clients, ad spend and the Flat Rate Scheme
You must register when taxable turnover for the last 12 months goes over £90,000, or when you expect to go over it in the next 30 days alone. Three agency-specific points matter.
Overseas clients
For business clients, the place of supply of most services is where the customer belongs, so work for a business client outside the UK is outside the scope of UK VAT. Keep evidence that the client is in business: for EU clients, their VAT number is the best evidence. Advertising and consultancy services supplied to non-business customers outside the UK are also treated as supplied where the customer belongs. See should I charge VAT on overseas sales.
Ad spend from overseas platforms
When a supplier outside the UK bills you for business services, the reverse charge applies: you account for the VAT yourself. If you are not yet VAT registered, HMRC says the value of those services must be added to your own taxable supplies when deciding whether you must register. An agency with £60,000 of fees that also buys £40,000 of media from an overseas platform in the same 12 months has crossed the threshold.
Rebilled media
Where the ad account is in the agency's name, the media you recharge is normally part of your own supply and VAT is due on the full amount. It can only be excluded as a disbursement if every one of HMRC's conditions is met, including that you acted as the client's agent, the client was responsible for paying, and you recover the exact amount paid.
Flat Rate Scheme
The Flat Rate Scheme rate for advertising is 11%, but a business that spends less than 2% of its flat rate turnover on goods (or more than 2% but under £1,000 a year) is a limited cost business and must use 16.5%. Agencies spend mostly on services rather than goods, so check this test first: HMRC warns that a limited cost business may pay more VAT than under standard accounting. Use our Flat Rate Scheme guide before joining.
Freelancers, employees and IR35
A freelancer who works to your direction, on your schedule and with no real business of their own may be an employee for tax purposes, whatever the invoice says. HMRC's Check Employment Status for Tax (CEST) tool gives HMRC's view, and HMRC stands by the result if the information you give is accurate.
If a freelancer works through their own limited company, the off-payroll working rules (IR35) decide who assesses their status. A small client outside the public sector leaves that to the freelancer's company. A medium or large agency, measured using the Companies Act size tests, must make the decision itself and issue a status determination statement. Earnings caught by those rules cannot be counted towards Employment Allowance.
R&D tax relief: when it applies to an agency
R&D relief is for projects that seek an advance in science or technology by resolving scientific or technological uncertainty. HMRC is explicit that advances in the arts, humanities and social sciences do not count. Campaign strategy, creative work, content, SEO and audience research are not R&D, however novel they feel.
A genuine claim is possible where an agency builds its own technology that seeks an advance in computer science, for example new data processing methods that a competent professional could not readily work out. Configuring existing software to your needs is unlikely to qualify.
For accounting periods beginning on or after 1 April 2024 the merged scheme gives a taxable expenditure credit of 20% of qualifying costs. Loss-making SMEs spending at least 30% of total costs on R&D can instead use enhanced R&D intensive support. Only the company that decides the R&D is needed can claim, so work a client asked you to do is theirs to claim, not yours. First-time claimers must notify HMRC within 6 months of the end of the period of account, and every claim needs an additional information form. Be wary of anyone promising R&D refunds for ordinary marketing work.
Cash flow, retainers and late payers
Under standard VAT accounting you pay HMRC the VAT on your invoices even if the client has not paid you. The Cash Accounting Scheme, open to businesses with taxable turnover of £1.35 million or less, lets you pay VAT when customers pay instead. Corporation Tax is due 9 months and 1 day after the year end, so set aside a share of profit monthly rather than finding £20,000 at once. Agree clear payment terms, invoice retainers in advance, and ask clients to pay large media budgets up front.
Key deadlines for 2026/27
| What | When |
|---|---|
| VAT return and payment | 1 calendar month and 7 days after each VAT period ends |
| Corporation Tax payment | 9 months and 1 day after the end of the accounting period |
| Company Tax Return (CT600) | 12 months after the end of the accounting period |
| Annual accounts to Companies House | 9 months after the accounting reference date |
| Confirmation statement | At least once every 12 months, within 14 days of the review period ending |
| Director's Self Assessment for 2025/26 | File online and pay by 31 January 2027; second payment on account by 31 July 2027 |
How GoForma helps marketing agencies
GoForma is a UK online accountancy practice with ACCA and AAT qualified accountants, working with clients across the UK by phone, video, email and WhatsApp. We are rated 4.9 on Google from 72 reviews and 4.8 on Trustpilot from 142 reviews.
- Operate Bundle, £128 a month plus VAT: a dedicated accountant, year-end accounts and CT600, payroll for one director, VAT returns, director Self Assessment, confirmation statement and a London business address.
- Grow Bundle, £148 a month plus VAT: the same for two directors.
- Start Bundle, £88 a month plus VAT (50% off for the first 3 months) for agencies not yet VAT registered.
FreeAgent accounting software, worth £360 a year, is included in every package, and all packages are rolling monthly. Compare them on our packages page, run a free FreeAgent books health check, or book a free consultation.