Do marketing agencies charge VAT? UK small business guide

What to take away

Most marketing agencies charge VAT because their turnover passes the £90,000 registration threshold.
A VAT-registered agency adds 20% to its fees for UK business clients.
VAT-registered clients can normally reclaim that 20% as input tax.
An overseas agency does not charge UK VAT; the reverse charge moves the accounting to you.
Compare quotes gross rather than net if you cannot reclaim the tax.

Why VAT lands on most agency invoices

Marketing services are standard-rated, so tax is charged at 20% unless a narrow exemption applies. Once an agency's taxable turnover passes the registration threshold, it must register with HMRC and add VAT to its invoices. GOV.UK sets the threshold at £90,000, the level in force since April 2024, in its guidance on when to register for VAT.

VAT is not income for the agency. It collects the tax and passes it to HMRC, usually through a quarterly return.

An agency below the threshold does not have to register. Some register voluntarily so they can reclaim VAT on software and subcontractors. A modest headline fee can therefore still arrive with 20% added.

What a compliant agency invoice should show

Compliant agency invoice

Fee for services: The agency's net charge before tax
VAT at 20%: Added when the agency is VAT-registered
Total due: The gross figure that leaves your bank account
Agency VAT number: Needed if you want to reclaim input tax

The Value Added Tax Act 1994 sets the framework for registration, charging and recovery. A usable invoice needs the supplier's VAT number, the net amount, the rate applied and the gross total.

Compliant VAT invoice checklist

Fee for servicesnet charge before tax
VAT at 20%added when registered
Total duegross figure leaving your bank
Agency VAT numberneeded to reclaim
Ask for VAT invoice, not receipt

Ask for a VAT invoice rather than a plain receipt. Without the agency's VAT number, reclaiming input tax becomes difficult and HMRC can reject the claim.

An invoice also ties back to the payment terms you agree with the agency, because VAT falls due in the return period when the invoice is issued rather than when it is paid.

The £90,000 threshold and smaller agencies

Turnover is tested over a rolling 12-month period, not the agency's accounting year. An agency that goes over the threshold must tell HMRC within 30 days of the end of that month. Registration then starts from the first day of the second month after the breach.

Crossing the VAT threshold

Rolling 12 months
turnover tested, not accounting year
Breach month end
tell HMRC within 30 days
Second month after
registration starts from day one

An agency that registers voluntarily can reclaim input VAT, but it must also charge VAT to clients who cannot reclaim it. That trade-off shapes how small agencies price their work.

A newly registered agency may have to absorb VAT on work quoted before it registered. Some reissue the quote. Others ask the client to cover the shortfall, so settle this in writing before you sign.

When the reverse charge applies

If the agency is based outside the UK, place of supply rules usually shift the VAT to the customer. A UK VAT-registered business accounts for it under the reverse charge, entering the same amount as output tax and input tax. The net cash effect is often nil, but the figures still belong on your return.

You never pay VAT to the overseas agency. You self-account instead, which keeps the transaction visible to HMRC. GOV.UK's collection of VAT guidance sets out how this works on a return.

Comparing net, gross and reclaimable VAT

An agency quotes £4,000 a month plus VAT, so the invoice total is £4,800. A VAT-registered client reclaims the £800 and the real cost stays at £4,000. A client outside the VAT system pays the full £4,800 each month.

Net vs gross monthly cost

VAT-registered client

Monthly invoice: £4,800
Reclaimable VAT: £800
Real monthly cost: £4,000
Annual cost: £48,000

Non-VAT client

Monthly invoice: £4,800
Reclaimable VAT: £0
Real monthly cost: £4,800
Annual cost: £57,600

Across a year the gap is £9,600. That is the number to weigh when you compare typical retainer fees from two agencies.

Some agencies quote gross figures to sidestep the net-versus-gross confusion. Ask which basis a quote uses before you benchmark it against another supplier.

Common questions

Do all marketing agencies charge VAT?

No. Only agencies registered for VAT must add it to their invoices. An agency below the £90,000 threshold can trade without charging VAT, and some stay unregistered to keep headline prices competitive.

Can I reclaim VAT on marketing agency fees?

If your business is VAT-registered and uses the agency for taxable business purposes, the VAT is normally recoverable as input tax. You need a valid VAT invoice showing the agency's registration number.

How does the reverse charge work on an overseas agency invoice?

You account for the VAT yourself rather than paying it to the supplier. The same figure goes on your return as output tax and input tax. Most businesses end up with nothing extra to pay.

Is VAT charged on media spend as well as fees?

Media buying and campaign management are standard-rated services, so VAT applies to them. Where the agency buys media as your disclosed agent, ask for fees and pass-through costs to be shown separately.