Want To Boost Your Agency’s Profit Margin? Follow These Tax Tips

As you add the building blocks to your new agency, you’ve probably tried to develop a set of core processes geared towards success. But have you extended that to your taxes? It’s not glamorous, but when it comes to boosting that profit margin and progressing your business beyond the startup stage, efficient tax planning will pay dividends as you grow.

Follow these five strategic tips to leverage the UK tax system to your advantage.

Choose the right business structure

Whether you’re just starting out or reassessing your position, choosing the right business structure will directly impact how much tax you pay and how profits are distributed. That’s right – it’s not just a formality after all!

Limited companies benefit from a lower corporation tax rate, and directors can pay themselves in a way that optimises tax savings (more on that shortly). However, new agencies might find it simpler and more cost-effective to start as a sole trader, paying personal income tax rates. The trick is to regularly evaluate whether your structure aligns with your profitability and goals.

Utilise Research & Development (R&D) credits

R&D tax relief is designed to support innovation no matter what industry you’re in. Yet many creative agencies don’t even bother applying under the assumption that they aren’t ‘scientific’ enough.

If your agency qualifies, you could be looking at a substantial reduction in your corporation tax bill or even a cash rebate based on deductions for wages, software, subcontractor expenses and more. Technical problem-solving or innovative campaign strategies could see your agency accepted – so gather detailed records of your projects and run it by a tax specialist to ensure your application is watertight and compliant.

Maximise director remuneration efficiency

Are you paying yourself too much? Sounds like a trick question, but hear us out. Striking the right balance between salary and dividends is one of the most effective ways to boost your profits – and it’s so simple…

By paying yourself a salary just below the NIC threshold, you’ll maintain state benefits – while the remainder can be taken as dividends at a reduced tax rate. But this shouldn’t be a one-time fix. Tax rates and thresholds change, so it’s wise to review this annually and ensure your payout structure is compliant with HMRC and within regulations. Talking strategy with a qualified accountant can help ensure this.

Capitalise on allowances and deductions

One of the more obvious tax-planning strategies is to take advantage of the reductions available to you. Yet these are often overlooked by busy agency owners who didn’t know they existed in the first place.

Allowable expenses range from equipment, software or office fees to costs for remote working from home. Yes, the government might just cover some of your household bills if you ask the right questions! While some deductions may seem small, when added together they can represent seriously useful savings over time – edging those all-important profits upwards.

Plan for VAT efficiency

Managing your VAT can be tricky as you try to keep one eye on your cash flow. Most of the time, however, all agency owners need is a bit of clarity on which scheme to choose and when – and then suddenly, your bottom line looks a whole lot better.

For smaller agencies with minimal VAT-eligible purchases, the Flat Rate VAT Scheme might be the best option. You’ll pay a fixed percentage of your gross turnover, which is often lower than the standard VAT rate. On the other hand, the standard rate allows you to reclaim VAT on business expenses – presenting a benefit for larger agencies.

Choose Nabarro Poole to maximise your profits

Ultimately, effective tax planning is knowing where to look, when to act, and how to plan strategically for the long term – three things that the professionals at Nabarro Poole can support you with.

Our tax-planning specialists can help you dot the i’s and cross the t’s on your finances, getting clarity on where you stand and how to make the most out of your current situation. Then, we can help you develop a multi-year tax strategy or rolling tax plan to ensure you stay reactive to internal and external changes that affect your business.

It’s all geared towards boosting your profits and aligning with your growth goals. Contact our friendly team today for expert advice – we’d love to hear about you and your agency.