Finance Guide for Agencies

The right structure for an agency

Almost every UK agency above one or two people incorporates. The reasons are practical: enterprise procurement teams will not sign master service agreements with sole traders, professional indemnity insurance is cheaper for a company, and once two or more people are involved the liability protection of a limited company becomes essential. You also gain the ability to issue share options or bring in a co-director cleanly.

Expect to pay £12 to incorporate with Companies House plus around £1,200–£2,500 a year for an accountant who will handle Corporation Tax, payroll, dividends and your annual accounts. That cost is dwarfed by the operational benefits.

Banking and team cards

An agency's banking stack typically has three layers. First, a primary business current account for all client receipts and supplier payments — Tide, Starling Business or a high-street provider all work. Second, a savings account for the tax pot (Corporation Tax plus an estimated VAT reserve). Third, expense cards for staff: virtual cards for SaaS subscriptions, physical cards for senior staff who travel or buy hardware. Tools like Tide, Pleo or Capital on Tap let you issue cards with per-card limits and category restrictions.

Retainer vs project billing

Most agencies run a mix. Retainers smooth cash flow and pay the rent; project work delivers margin. The trap to avoid is letting big projects dominate so heavily that one delay puts payroll at risk. Aim for at least 40% of monthly revenue to come from retainers once you are past the first year.

Whichever models you use, invoice the same day work is completed or the retainer period begins. Net-14 terms should be the agency default. Reserve net-30 for blue-chip clients who genuinely insist and have the procurement systems to pay on time.

Paying subcontractors and freelancers

Agencies live or die by their freelancer bench. Pay them on the same terms you ask of your clients — or better. A 14-day standard, with the option to pay in 7 days for a regular contributor, is a competitive advantage. Always agree the rate, scope and invoicing detail in writing before the work starts. Keep a simple onboarding pack: contractor agreement, NDA, IR35 status determination if relevant, bank details form, and your invoice template.

Rolling 13-week cashflow

A 13-week rolling cashflow is the single most useful spreadsheet in an agency. You list every expected receipt and payment week by week — payroll, rent, software, contractor invoices, tax bills — and update it every Monday morning. The forecast surfaces gaps four to six weeks ahead, when you can still chase a late invoice, push a milestone, or draw down a credit facility without panic.

Expense policy

A written spending policy of one page prevents 90% of awkward conversations. Cover: who can spend up to what, approval thresholds, which categories are pre-approved (software, travel under £200), what counts as client entertainment, the receipt rule (photograph everything within 48 hours), and how to handle personal use of business cards. Share it on day one with every new joiner and freelancer.

VAT for service agencies

Most agencies cross the £90,000 VAT threshold within their first year. Register the moment you can see twelve-month turnover crossing the line — do not wait for the bill. The standard rate of 20% applies to almost all UK-based agency services. If you bill non-UK businesses, the place of supply rules generally mean you can zero-rate the invoice but you still need to confirm the client's VAT number and keep the evidence.