This article is for founders of UK marketing and communications agencies who want to proactively save Corporation Tax before the close of their financial year through effective but often overlooked strategies. Tax rules vary by jurisdiction, so this article is unlikely to be relevant to anyone running an agency outside the UK.
End-of-year tax planning matters, as some reliefs are only available if the purchase has already been made, or, in the case of pension contributions, paid to the pension provider. With large company profits (above £250,000) taxed at 25% and the marginal rate at 26.5% (for profits between £50,000 and £250,000), not acting can mean your agency pays more Corporation Tax than it needs to.
Below is a quick checklist you can work through, followed by a closer look at each area in the order we’d tackle them. We start with the items that affect your profit, such as expenses, work in progress, bad debts, capital allowances, pension contributions, bonuses and how you pay yourself.
Once those are provided for, we move on to forecasting your Corporation Tax bill, checking dividends and director’s loan accounts and building next year’s budget. We finish with how year-end planning helps you run a more profitable agency.
Want a clear view of your agency’s year-end position before it’s too late to act? Speak to Barnridge Accountancy,we’re specialist accountants for marketing, PR and communications, creative and digital agencies.
Your agency’s end-of-year tax planning checklist
Work through this list two to three months before your year-end, whilst there is still time to act on what you find.
- Review expenses and make sure legitimate costs are recorded in the right year
- Provide for any use of home allowance or apportionment of utility bills, whichever is higher
- Claim any mileage if you have used a personal vehicle for business trips
- Claim any charging costs if you have an electric vehicle owned or leased through the agency
- Review accruals, prepayments, deferred income and work in progress
- Chase overdue client invoices and review bad debts
- Check whether planned equipment or technology spend qualifies for capital allowances
- Decide on any employer pension contributions and pay them to the provider before year-end
- Decide whether bonuses are affordable, and how and when they’ll be paid
- Make sure you’ve used your £300 maximum trivial benefits allowance
- Consider the business structure of your agency
- Review the mix of salary, dividends and pension you take as a director
- Forecast your profit and Corporation Tax bill, and plan for the payment due up to nine calendar months and a day after year-end
- Check distributable reserves (after providing for current year Corporation Tax) before declaring dividends
- Clear or plan for any overdrawn director’s loan account
- Build next year’s budget and forecast, including downside scenarios
Review expenses before the financial year closes
A cost is deductible for Corporation Tax when it’s incurred wholly and exclusively for the purposes of the trade.
The year-end job is to ensure everything that qualifies is in the books and in the right period. All financial records must be entered in the accounting software (such as Xero), ideally with supporting documents such as a VAT invoice or receipt attached.
A common mistake small business owners make is to assume all business expenses are deductible for Corporation Tax. Non-staff entertaining (such as client and journalist entertainment), non-staff gifts over £50 per recipient in the year and any gifts of food, drink or vouchers are add-backs to profit for Corporation Tax.
Areas worth checking in an agency include:
- Freelancer and contractor invoices for work already delivered but not yet billed to you. Freelancers have a habit of dating their invoices in the following month, which means that they often don’t get included in the correct financial year (see accruals later on)
- Software subscriptions, licences and tools paid on personal cards. Ideally, everything will be paid through the business card
- Ensuring that all employees have submitted their expense claims for year-end. Staff often don’t enter these promptly.
- Use of home costs/additional household expenses, using either the £6 a week flat rate or an apportionment of utility bills, whichever is higher, has been claimed. These are usually added to the director’s loan account to reduce what a director owes or the balance repayable to the director.
- Mileage and electric vehicle charging are easy to miss. If you use your own car for business journeys, the company can pay you HMRC’s approved rate of 55p a mile for the first 10,000 miles (45p for trips before 6 April 2026) and 25p after that. If the agency provides an electric company car, you can also claim charging costs if you pay them personally. Your home EV charger may be able to give you the costs. Make sure all of these are in the books before the accounts close for the year.
- Bringing forward spend you’d make anyway, such as training courses or purchasing computer equipment, will provide relief a year earlier. Be mindful that spending on things the agency doesn’t need only swaps a pound of cost for 19p to 26.5p of tax saved, which leaves you worse off. Cash in the bank matters more than the tax saved.
- Monthly costs such as software, subscriptions and news paywalls often come off the company card or go out by direct debit unnoticed. Review these costs and ask whether anyone is using them. If something hasn’t been used for a while, cancel it.
Review accruals, prepayments and work in progress
Agency profit depends heavily on when income and costs are recognised, and retainers and projects that cross year-end are where most revenue and profit and loss statement errors creep in.
Taxable profit follows the accounts, so getting these right matters for the tax bill and for an accurate view of performance.
| Situation | Typical treatment |
|---|---|
| Retainer or project billed in advance for work in the next year | Deferred income, taken out of this year’s revenue |
| Project part-complete but not yet invoiced | Accrued income or WIP, recognised for the work done to date |
| Freelancer or production costs for this year’s work, invoiced later | Accrued as a cost this year |
| Annual subscriptions, software or insurance paid upfront or travel for a later date | Prepayment, with only this year’s share expensed |
| Recharged client costs such as media or production costs | Matched to the related income so they don’t distort margin |
Under UK accounting standards, project revenue is usually recognised by stage of completion. Billing milestones are a useful guide, but they don’t always reflect how much work has actually been done. A project invoiced 50% upfront may only be 20% delivered at year-end, or the reverse.
For tax planning, this works both ways. Proper accruals can legitimately reduce this year’s profit, but deferring income or inflating costs without a basis in the work done isn’t planning and won’t stand up to scrutiny. The real value is in the visibility it gives you. Once WIP and deferred income are tracked properly, you can see which projects and retainers are actually making money.
For Barnridge clients, these are reviewed and adjusted at least annually for year-end accounts or monthly where management information is provided.
Review outstanding client invoices
Late-paying clients are one of the biggest pressures on agency cash flow. You pay staff and freelancers monthly, but large clients often sit on 30 day terms, sometimes between 60 to 90 day terms and then they can pay late on top.
An agency can look profitable on paper but be in bad financial health, struggling to cover payroll and tax liabilities as client payments lag.
Before year-end, run through your aged debtors report and:
- Chase anything overdue, especially larger balances from project work
- Identify invoices you don’t realistically expect to be paid
- Write off or specifically provide for those debts, so profit and tax reflect what you’ll actually collect. That’s not to say you shouldn’t keep pursuing the debt; you can always write the bad debt back later should the cash come in.
- Check whether VAT bad debt relief is available on invoices more than six months overdue, unless your agency prepares and files its VAT returns on the cash accounting basis.
A specific provision against a named debt is normally allowable for Corporation Tax. A general percentage across the ledger isn’t.
Look at the bigger picture too. If debtor days have crept up, or one client accounts for most of the overdue balance, that’s a commercial issue to address in your terms, deposits on project work and how quickly you invoice after delivery.
Consider whether planned investment qualifies for tax relief
Corporation Tax rules allow you to deduct qualifying expenditure on asset purchases immediately in the year of purchase, unlike depreciation, which spreads the cost over the asset’s useful life.
If the agency needs new kit, buying it before year-end can bring the tax relief into this year. For most agencies, laptops, monitors, cameras, edit suites, studio equipment and office furniture qualify as plant and machinery. The Annual Investment Allowance for 2026/27 is £1m, which is more than enough for agencies and agency groups.
| Allowance | Relief | Points to note |
|---|---|---|
| Annual Investment Allowance (AIA) | 100% on up to £1 million a year | Covers typical agency spend; shared across a group |
| 100% first-year allowance | 100% of the cost of the asset | New and unused electric vehicles (ex-demonstrators are included) and electric vehicle charge points. Currently available until 31 March 2027 |
| Full expensing | 100% with no cap | Companies only; new and unused assets. AIA is more than enough for agencies and agency groups |
| 40% first-year allowance | 40% in year one | From 1 January 2026; mainly relevant above the AIA limit |
| Main pool writing down allowance | 14% a year | Reduced from 18% from 1 April 2026 |
Cars are excluded from the AIA and full expensing, although new zero-emission cars currently qualify for a 100% first-year allowance. The asset generally needs to be bought and in use or ready for use before year-end. Because lead times for new EVs are fairly long, ordering in the last few months may mean you don’t get tax relief until the following financial year if delivery comes after year-end.
Only buy what the business needs. A £5,000 piece of equipment saves at most around £1,325 of tax, so the other £3,675 has to earn its keep in the business. If you already planned a purchase for the first quarter of next year, bringing it forward makes sense. If it wasn’t planned at all, it’s probably not worth it.
Review employer pension contributions
Pension contributions the company pays for a director are deductible for Corporation Tax as long as certain conditions are met. For many agency owners, they’re one of the most tax-efficient ways to extract profits out of the business.
There are a few conditions to keep in mind:
- Timing. Relief is given in the period the contribution is paid to the provider. Accruing it in the accounts isn’t enough.
- Annual allowance. Total contributions are capped at £60,000 a year, with any unused allowance from the previous three years available to utilise (up to £180,000), provided you were a member of a registered pension scheme in those years. The allowance tapers down for higher earners.
- Reasonableness. Under the wholly and exclusively rules, the contribution should make sense as part of the director’s overall remuneration package, commensurate with the role, which is rarely an issue for working founders managing an agency.
- Access. Under the current rules, pension funds are locked away until at least age 55, rising to 57 from 2028, when you can take up to 25% tax-free. It needs to be money you and the agency won’t need in the meantime.
The right level of contribution depends on your personal tax position, existing pension savings and plans, so take individual tax and financial advice before making pension contributions.
You and/or your accountant can confirm what the company can afford and the Corporation Tax effect.
Balance pension contributions and the resulting tax savings with the agency’s cash requirement to cover running costs and other financial obligations.
Aim to keep at least 60 days of operating costs in the agency should you not receive another penny from your clients. Your independent financial adviser can help with where the money goes and how much you can invest within the rules.
Consider bonuses before year-end
A good year is a natural time to reward the team, and bonuses are deductible for Corporation Tax. Before committing, check four things.
- Affordability. Look at the forecast for next year as well as this year’s profit. If a key client is under review or the pipeline is light, cash paid out soon may be needed in the next twelve months.
- Ageing debts. Is the profit relying on significant client debts coming in that are already ageing? If a client doesn’t pay, profit falls with it. Only pay bonuses from profit that’s been collected as cash.
- Cash and cost. A bonus carries employer NI at 15% on top, so a £10,000 bonus costs the agency £11,500. The increased PAYE, NI and student loans, if applicable, will be payable the month following the bonus going through payroll.
- Timing. A bonus can be deducted in this year’s accounts if the company has an obligation to pay it at year-end, for example, a board decision or a contractual scheme, and it’s paid within nine months of year-end. Miss the nine-month window and relief moves to the year it’s actually paid.
For directors, a bonus is usually more expensive than a dividend once employer’s NI is included, although it does reduce Corporation Tax and can help clear an overdrawn loan account, with the net amount after tax and NI credited to the loan account. Run the numbers for your own position before choosing.
Bonuses work best when they’re linked to something measurable, such as agency margin/profit, client retention and metrics, individual performance or a combination of more than one of these, so the team can see what drives them.
Trivial benefits
Ensure you’ve taken your full entitlement to trivial benefits. As a director, you can receive up to six benefits or gifts of £50 a year tax-free, capped at £300 per tax year to 5 April. The cost is deductible for Corporation Tax. Each benefit or gift must cost £50 or less including VAT, must not be cash and must not be a reward for work. Gifts to your family or household count towards the same £300. There’s no annual cap for employees.
Gift cards are a simple way to do this, such as a £50 supermarket or retail gift card for your birthday or at Christmas. The company must pay for each card directly. Each card must also be a separate gift. Topping up the same card several times counts as one benefit, so it would go over the £50 limit.
Business structure: limited company and holding company
Regularly consider the business structure an agency operates under. Consider whether a limited company is better if operating as a sole trader, partnership or LLP.
For agencies structured as a limited company, consider whether it may be better to have a parent company. A parent company can give you flexibility to move post-tax profits to another company for onward investment.
Bear in mind that adding another trading company creates an associated company, which splits the £50,000 and £250,000 Corporation Tax thresholds between the companies.
A pure holding company that only holds shares in its subsidiaries is generally disregarded. Failing to review the agency’s business structure could mean losing control over tax paid and paying more tax than necessary.
Review how you’re paying yourself
Most agency founders take a mix of salary and dividends, and year-end is a good point to check that mix still works. The right answer depends on your other income, whether you’re the only employee, how many other director/shareholders there are and what you need to live on, so there’s no single salary figure that suits everyone.
If you’re an agency founder with an adjusted net income of £100,000 or less, you’ll get the full personal allowance of £12,570 for the 2026/27 tax year. That means you can pay yourself a director’s salary of £12,570 without paying any income tax or employee National Insurance on it. Employer NI still applies above £5,000 unless the Employment Allowance is available.
Agency owners should evaluate the impact of director remuneration on tax efficiency and relief eligibility. Some founders take everything as salary through PAYE for peace of mind, avoiding large payments on account and reducing the Corporation Tax bill, while accepting a higher overall tax cost.
Whatever mix you choose, plan for self-assessment balancing payments and payments on account, which can catch shareholders out, as can the Corporation Tax payment when it comes around.
| Method | Company tax position | Personal tax position |
|---|---|---|
| Salary | Deductible; employer NI at 15% above £5,000 | Income tax and employee NI through PAYE |
| Dividends | Paid from post-tax profit, no deduction | 10.75%, 35.75% or 39.35% above the £500 allowance |
| Employer pension | Deductible when paid; no NI | No tax until drawn |
| Expense reimbursement | Deductible if a genuine business cost | Tax-free if wholly for the business |
| Repaying a director’s loan | No effect | Tax-free, as it’s your own money coming back |
The Employment Allowance, if applicable, can offset up to £10,500 of employer NI, which changes the sums for agencies with staff. It isn’t available where a director is the only employee paid above the secondary threshold, which affects many smaller agencies.
Remember the timing difference. You pay tax on salary and dividends by tax year, ending 5 April, while the company’s position is measured at its own year-end. If your income is close to £50,270 or £100,000, paying a dividend in late March or early April can change the personal tax by thousands.
Forecasting your Corporation Tax bill
Once expenses, accruals, bad debts, pension contributions and bonuses are provided for, you can forecast profit with some confidence.
Doing it any earlier means working from a number that’s about to change. Take your year-to-date management accounts, add a realistic view of the remaining months and you’ll have a working estimate of taxable profit and the tax that goes with it.
Barnridge clients that receive monthly management information have a reliable estimate of their Corporation Tax highlighted and included on their balance sheet, so there are no nasty surprises.
For agencies, the final quarter can move the number a lot. A large project landing or slipping past year-end, a lucrative retainer being cut or a run of freelancer costs on a pitch can all shift profit by tens of thousands. Build the forecast from your actual pipeline and committed retainers rather than last year’s run rate.
| Taxable profit | Rate |
|---|---|
| Up to £50,000 | 19% |
| £50,001 to £250,000 | 25% less marginal relief. Effectively 26.5% tax on profit in this range, with the first £50,000 at 19%; the overall tax paid on profits is between 19% and 25%, getting closer to 25% the nearer profit gets to £250,000 |
| Over £250,000 | 25%; all profit is charged at this large profit rate |
These thresholds are divided between associated companies and reduced for shorter accounting periods, so a group structure or a change of year-end can push you into a higher band sooner than expected.
Then look at cash. Most agencies pay Corporation Tax nine months and one day after year-end, while companies with profits over £1.5 million pay by quarterly instalments.
Knowing the bill early means you can set money aside each month instead of finding a lump sum at the same time as a VAT quarter and a quiet billing month.
Setting the Corporation Tax aside in an interest-bearing bank account will not only earn additional income but will ensure you don’t fall into the trap of treating HMRC’s cash as your own.
Check dividends and director’s loan accounts
Dividends can only be paid from distributable reserves, meaning accumulated profits after providing for the current year’s Corporation Tax.
That’s why the tax forecast comes first. If you’ve been taking regular dividends through the year based on reliable management accounts with Corporation Tax provided, you can be confident the profit is there. Without them, you won’t know until after year-end whether the profit was really there.
Writing off an unpaid client invoice or making a WIP adjustment can turn a comfortable position into an unlawful dividend, which may then have to be treated as a director’s loan to be repaid (an overdrawn loan account).
Make sure every dividend has board minutes and a dividend voucher dated when it was declared. Barnridge provides the paperwork for every client paying dividends.
Your director’s loan account records money moving between you and the company outside salary and dividends.
If it’s overdrawn at year-end and not cleared within nine months and one day, the company pays a temporary Section 455 charge on the balance:
- 35.75% for loans made on or after 6 April 2026
- 33.75% for loans made before then
The charge is refunded once the loan is repaid, but only nine months and one day after the end of the period in which it’s cleared, so cash can be tied up for well over a year. Loans above £10,000 at any point in the year can also create a benefit in kind if no interest is charged.
You can clear an overdrawn balance by repaying it, by voting a bonus or by declaring a dividend if reserves allow. Repaying just before year-end and borrowing the money straight back is caught by anti-avoidance rules, so plan a genuine route to clear it.
Build a budget and forecast for next year
Year-end gives you a clean set of numbers to plan from and allows you to set financial goals. A budget sets out what you expect income, salaries, freelancer spend and overheads to be. A rolling forecast then updates that view each month as new opportunities arise and clients, projects and hires change.
Agency income can move quickly, so test the budget against a few realistic scenarios:
| Scenario | What to model | Question it answers |
|---|---|---|
| Losing your largest client | Remove that retainer from a set month | How long could you cover the team before cutting costs? |
| Hiring ahead of growth | Add salary, NI, pension and recruitment fees from the start date | What new income is needed before the hire pays for itself? |
| Slower pipeline conversion | Push new projects back by two to three months | Does cash stay positive through the gap? |
| Clients paying later | Add 30 days to debtor collection | How much extra working capital do you need? |
Work out your tax payments within the forecast too, including Corporation Tax, VAT and PAYE, so they show up as cash going out on the dates they’re due.
A forecast also makes next year’s tax planning easier. You’ll know months ahead whether profit is heading for a higher band, whether there’s room for pension contributions and what you can safely draw as dividends.
Make year-end tax planning part of your financial management
The agencies that plan well at year-end are usually the ones that understand their numbers all year round and see how they compare to the set goals. Tax is the result of the decisions you make about clients, pricing, people and growth, and the earlier you see those numbers, the more options you have.
These are the measures we look at with agency clients, and why they matter at year-end:
| Measure | What it tells you | Year-end link |
|---|---|---|
| Gross margin after direct staff costs, freelancers and other client costs | Whether you’re getting a fair return on the client servicing | Drives the profit you’re paying tax on |
| Client profitability | Which retainers and projects actually make money | Shapes next year’s pricing, resourcing, scopes and which clients to grow |
| Scope creep | Hours delivered beyond what was sold | Unbilled work drags margin down |
| Utilisation | The proportion of time that goes on potentially billable work | Gives you an idea of capacity and whether to hire or use freelancers |
| Freelancer spend | How much delivery relies on outside capacity | Flexible cost, but often at a higher rate than staff |
| Debtor days | How quickly clients pay | Determines whether you can pay the tax bill and bonuses |
| Client concentration | How much income comes from your largest clients | A big client loss changes both profit and cash plans |
Take scope creep. A retainer that initially looks profitable can lose money once you add up the extra rounds of amends and the senior time that went into it. Fixing that through clearer scopes, change requests, commercial staff training and regular retainer reviews can be worth far more than any year-end tax relief.
Client concentration works the same way. If one client makes up a large share of fee income, decisions on bonuses, dividends, hires and pension contributions all need to allow for what happens if they leave.
When these numbers are reviewed every month, year-end planning stops being a scramble in the final few weeks. You already know your likely profit, your cash position and the decisions available to you, and the tax side becomes one more thing to get right.
Know your agency’s financial position with Barnridge Accountancy
Barnridge works exclusively with marketing, PR, creative and digital agencies. We understand retainers, project billing, WIP, freelancer costs and the cash flow pressures that come with them, because agency finance is all we do.
We can review your forecast profit and Corporation Tax position ahead of year-end, look at how you’re paying yourself and help you decide what makes sense for the agency and for you. Beyond year-end, we run the full finance function for agencies, from management reporting and forecasting to compliance, payroll and finance director-level advice.
Speak to Barnridge Accountancy about your agency’s year-end planning.
Frequently asked questions about end-of-year tax planning
Should I buy equipment before year-end to save tax?
Only purchase equipment if the agency needs it. Most equipment qualifies for 100% relief through the Annual Investment Allowance or full expensing, so buying before year-end brings the relief forward by a year. The saving is between 19% and 26.5% of the cost, depending on your profit, so a purchase made only for tax still leaves the agency out of pocket. If the spend was already planned for the next few months, bringing it forward can make sense, as long as the cash is there and the kit is in use before year-end.
When should I speak to my accountant about year-end planning?
Ideally two to three months before your year-end if taking a proactive approach, and at least one month before. That gives time to produce an accurate profit forecast, agree pension contributions, plan dividends and director’s loan repayments and make any purchases before the deadline. Leave it until after year-end and most of the options have gone, because the accounts can only record what has already happened.
Can I accrue a pension contribution at year-end to get tax relief this year?
No. Employer pension contributions only get Corporation Tax relief in the period they’re actually paid to the pension provider. An accrual in the accounts isn’t enough, so make sure the payment has cleared before your year-end.
Is the Christmas party tax deductible?
Yes, staff entertaining is deductible for Corporation Tax. It’s also tax-free for staff if the event is open to all employees and the total cost of annual events is £150 a head or less, including VAT. If clients attend, their share of the cost isn’t deductible, and you can’t reclaim VAT on it.
Should I pay myself a bonus or a dividend before year-end?
It depends on your personal position. A bonus reduces Corporation Tax but carries employer NI at 15%, plus income tax and employee NI. A dividend has no NI but is paid from post-tax profit. For most founders, dividends work out cheaper overall, but run the numbers for your own income first.
Can I change my agency’s year-end?
Yes. You can shorten your accounting period as often as you like. You can extend it up to a maximum of 18 months, usually no more than once every five years. A change can help align your year-end with a quieter period, but it also affects when Corporation Tax is due (except in the first year of change) and how the profit thresholds apply. Speak to your accountant before changing it.
What happens if I’ve taken dividends but the profit isn’t there?
The dividend may be unlawful. If you knew, or should have known, there weren’t enough reserves, you can be required to repay it. HMRC may also treat it as a loan, which can trigger a Section 455 charge if it isn’t repaid in time. This is why we check reserves after the tax forecast.
We have a long time to prepare the annual accounts and company tax return, so why plan so far in advance?
Limited company directors do have a generous accounts filing deadline of nine months to Companies House, and the same tax deadline for payment, with the Corporation Tax return filed with HMRC after twelve months to avoid penalties.
However, some tax-saving actions require payment (in the case of pensions) or purchase to have been made, even if paid later under trade terms, or in the case of bonuses, for it to have been documented. Leaving it to the last minute, without any planning, could mean you don’t get tax relief until the following year.
