A Marketing Agency's Guide to Tax

Understanding tax is crucial for any marketing agency—or any business, for that matter. Taxes affect every part of the business, from the money you earn to the money you spend. Knowing the basics can help avoid mistakes that could cost both time and money.

Understanding Tax Basics for Marketing Agencies in the UK

Understanding tax basics is crucial for anyone running an agency. Here are the key types of taxes you need to be aware of:

• Corporation Tax: This is the tax on the profits your business makes.
• VAT (Value Added Tax): VAT is added to the price of goods and services you sell and is also paid on certain expenses.
• Income Tax: This is the tax you pay on your earnings.

Understanding these terms will help you better grasp your tax bills and financial statements.

It’s also important to know how to practically deal with taxes in the UK. Tax on business profits is reported through corporation tax returns, known as a CT600. You must file the CT600 using appropriate software; most businesses delegate this task to their accountant, as it can be time-consuming and complex for a once-a-year filing.

VAT returns are typically filed quarterly, also using software. There are alternative VAT schemes to quarterly, such as the annual accounting scheme, which smaller businesses may qualify for.

Tax on your personal income, typically dividends for a company director, is declared on your Self Assessment (SA100) and filed annually. Your accountant can file this, or you can file it yourself on the HMRC website.

Make sure to keep accurate records of all income and expenses; it makes filing easier and keeps you compliant with tax laws.

How Does Tax Impact a Marketing Agency

Taxes impact a business in several ways, reducing cash flow available for investment in other business activities and, most importantly, growth. Taxes can also present a risk for a business due to the possibility of non-compliance.

Expenses must be carefully managed to ensure they are tracked accurately for tax deductions. Not all costs are tax-deductible, so knowing which ones qualify is crucial. This can include office supplies, advertising costs, and employee salaries.

Failure to comply with tax regulations can result in penalties and fines, harming the business’s reputation and financial standing. Regular bookkeeping and staying informed about changes in tax law can help avoid these issues.

Reducing Tax for Marketing Agencies

Fortunately, marketing agencies can employ several tax strategies to reduce their tax liability.

The most common strategy is leveraging all allowable business expenses. These can include costs for freelancers, software, travel, and advertising. By keeping detailed records of these expenses, agencies can lower their taxable profit, thereby reducing their tax bill.

Another valuable tax benefit is the availability of tax credits. Unlike deductions, which reduce taxable income, tax credits directly reduce the amount of tax owed.

Significant tax credits may be available for marketing agencies involved in research and development. If your agency is developing new systems, processes, or methods that are innovative and involve technological advancements, exploring tax credits for research and development is worthwhile.

Practical Steps To Manage Taxes

Keeping on top of your business's tax obligations can be straightforward if you follow these steps.

First, make sure you’re keeping up-to-date and accurate records. Keep all receipts, invoices, and financial documents organised. Use a tool like Xero or QuickBooks to manage your finances. These tools also help you track expenses and revenues, simplifying the tax return process and ensuring your accountant has all the necessary information.

The next tip is to hire a qualified accountant. They can help you understand the tax rules and ensure you are not missing any deductions or credits. An accountant can also assist with tax planning, helping you make decisions throughout the year that will save you money proactively.

Marketing Agencies and VAT

Value Added Tax (VAT) is a tax added to most goods and services businesses sell. For marketing agencies, understanding VAT is crucial. If your annual VATable turnover exceeds the VAT threshold (£90,000 as of 2024), you must register for VAT and charge it on your invoices.

This means you collect VAT from your clients and pay it to HMRC.

Incorrect handling of VAT can result in fines, substantial repayments, and potential legal issues. Always ensure your invoices reflect the correct VAT rates, and keep detailed records of all transactions.

To minimise VAT payments, consider the following:

• Register for VAT: Even if your turnover is below the threshold, voluntary registration can allow you to reclaim VAT on business expenses. For some agencies, this will result in a repayment each quarter.
• Use VAT Accounting Schemes: Look into schemes such as the Flat Rate Scheme, which simplifies VAT calculations and could save you money.
• Claim Input VAT: Ensure you reclaim VAT on eligible business expenses, reducing your overall tax bill. Accurate record-keeping is crucial to ensure you don’t miss opportunities to pay less tax.

These steps can help your agency manage VAT effectively, ensuring compliance and optimising cash flow.

Conclusion

Navigating the complexities of tax is essential for the success of any marketing agency. By understanding the basics, staying organised, and leveraging available tax strategies, agencies can not only ensure compliance but also optimise their financial health. Whether it's managing VAT, claiming eligible deductions, or exploring tax credits, taking a proactive approach to tax management can provide significant benefits, allowing your agency to focus on growth and creativity. Don't hesitate to seek professional advice to make the most of your tax planning efforts.

Get In Touch

Whilst it may seem straight forward to complete your tax returns on your own, if you want to make sure you are claiming everything you possibly can then it pays to consult an accountant such as Sidekick.

To find out whether you are maximising your expenses and keeping as much of your profit as you’re entitled to, book a call with us and we’d be happy to guide you - whether you are making the claim yourself, or if you’d like us to do it on your behalf.

Download Our Free Guide

We’ve come up with this free guide to help agencies stay on top of their finances and avoid potential tax pitfalls. Download it here.

‍Further Reading

For those eager to know more about taxes: a great resource is available in HMRC on the  Accounts and tax returns for private limited companies