Accounting & Tax for Creative & Media Agencies

Under FRS 102, revenue from fixed-price contracts should be recognised based on the stage of completion at the balance sheet date — not when invoiced or when cash is received. Stage of completion can be measured by: the proportion of contract costs incurred relative to total estimated costs, surveys of work performed, or completion of a physical proportion of the total contract work. For a £120,000 project that is 60% complete at year-end, £72,000 should be recognised regardless of invoicing.

It depends on the specific engagement. If the photographer works under your agency’s direction, uses equipment supplied by the agency, works exclusively with your agency and cannot substitute another photographer, the risk of IR35 (disguised employment) is significant — particularly if operating through a limited company. If the photographer shoots for multiple clients, brings their own equipment, and can substitute another photographer, the risk is lower. We assess each engagement individually.

VGEC provides a credit of up to 34% on qualifying UK core expenditure (development, testing, creative content) for video games that pass the BFI cultural test. The credit is calculated on 80% of total core expenditure (capped at 80% UK expenditure). For a loss-making studio, the credit is payable in cash. The game must be intended for commercial release. We handle BFI cultural test applications and VGEC claims for eligible games studios.

If your agency acts as agent for the client (the client is contractually liable for the media spend, the agency merely facilitates), the media cost is a disbursement — you recharge it at cost without VAT. Your agency fee is still standard-rated. If your agency acts as principal (you buy the media in your own name and resell to the client), the full invoice including media costs carries 20% VAT. Most agency contracts should be reviewed — many inadvertently create a principal relationship when an agent relationship would be more VAT-efficient for the client.

Creative agencies qualify for R&D tax credits if they carry out activities that seek to achieve a scientific or technological advance — not a creative advance. Development of novel software tools (proprietary editing pipelines, AI content tools, custom rendering engines), creation of new technical processes that resolve genuine uncertainty, and integration of incompatible systems where no standard solution exists — all potentially qualify. Writing a novel script, designing a logo or directing a video does not — these are creative rather than scientific/technological advances.

Recognising the full project fee when a deposit is received (before the work is done) overstates revenue and profits in the period of receipt and understates them in subsequent periods. Deposits are deferred income (a creditor) until the related work is performed. Stage-of-completion accounting correctly matches revenue to cost incurrence.

A day-rate developer working exclusively for your agency on-site full-time has a very different IR35 profile from a self-employed illustrator producing one piece a month for multiple clients. Applying a blanket ‘all our freelancers are self-employed’ policy without engagement-specific assessment is the most common creative sector IR35 error.

Many games studios and animation companies are not aware that VGTR/ATR has been replaced by VGEC/AEC with improved credit rates — or assume their project doesn’t pass the cultural test without trying. The BFI’s cultural test application costs a few hours of administrative work and can generate a 34–39% credit on qualifying UK expenditure. Not applying is leaving money on the table.

Agencies that invoice clients for total media spend (including their commission) as a single line item without considering the agent/principal distinction may be treating principal supplies as agent disbursements — creating a VAT under-declaration. HMRC’s creative sector compliance team specifically examines media placement invoicing.