Accounting for international clients: what UK agencies need to know

Key takeaways

• VAT rules depend on your client's location. For digital services to business clients outside the UK, you usually don't charge UK VAT. For EU consumers, you may need to register for VAT in their country.
• Your invoicing must be clear and correct. Cross-border invoices need specific details like your VAT number, the client's location, and a statement explaining why no VAT is charged, to avoid payment delays.
• Record-keeping is more complex. You must keep detailed records proving where your clients are based, as HMRC can ask for this evidence for up to six years.
• Currency exchange affects your profit. Fluctuations in exchange rates can significantly impact the actual pounds you receive, so you need a strategy to manage this risk.
• Professional advice pays for itself. The rules are intricate and change frequently. Working with specialist accountants for digital marketing agencies ensures compliance and protects your margins.

What are the basic international accounting rules for a UK digital marketing agency?

The core rule is that UK VAT treatment changes based on where your client is and what they do. If you provide digital marketing services to a business client outside the UK, you typically do not add UK VAT to your invoice. This is called "zero-rating" for VAT. The responsibility for accounting for any tax usually shifts to your client in their country.

This is a fundamental shift from domestic work. For UK clients, you add 20% VAT. For many international clients, you invoice the net amount only. Getting this wrong means you could undercharge (hurting your cash flow) or overcharge (annoying your client and potentially breaking the rules).

You must also keep rock-solid evidence of your client's business status and location. This isn't just a nice-to-have. HMRC requires it. Proof can include the client's business registration number, their website showing a non-UK address, or a signed declaration from them.

How does VAT work for overseas clients?

VAT on overseas clients depends on three things: the client's location, whether they are a business or a consumer, and the type of service you provide. For most digital marketing agencies serving business clients abroad, the service is "outside the scope" of UK VAT, meaning you don't charge it.

The distinction between a business client (B2B) and a consumer (B2C) is critical. The rules are designed for business-to-business transactions. If you're doing work for an individual overseas consumer, different rules can apply. For example, providing SEO or social media management to a private individual in the EU might require you to register for VAT in their country.

This is a key part of digital marketing agency international accounting rules. The "place of supply" for digital services is where your customer is based. Since your client is outside the UK, the supply is "made" there, not here. That's why UK VAT often doesn't apply. You can find the official HMRC guidance on this in their VAT notice on digital services.

What's the difference between EU and non-EU tax obligations?

For EU clients, there are specific reporting mechanisms you might need to use, especially if selling to consumers. For non-EU clients, the rules are generally simpler, but you still need proof of their location.

When working with EU business clients, the process is similar to other international clients: you usually zero-rate the supply. However, you must include both your UK VAT number and their EU VAT number on the invoice. This helps them claim the tax back in their country under the "reverse charge" mechanism.

For EU consumers, the rules changed significantly after Brexit. Previously, UK agencies used the VAT MOSS (Mini One Stop Shop) scheme. Now, if you sell digital services directly to consumers in the EU, you may face a threshold in each individual EU country. Once you exceed that country's threshold (often very low), you must register for VAT there. This creates a huge administrative burden, which is why most agencies focus on B2B services internationally.

For non-EU clients, such as in the USA or Australia, the principle is clearer. Services to businesses are typically outside the scope of UK VAT. You just need to keep evidence that your client is a genuine business based outside the UK. There are no EU-style reporting schemes to worry about.

How should you handle cross-border invoicing?

Cross-border invoicing must be precise to ensure prompt payment and compliance. Your invoice should clearly state your company details, your UK VAT number (even if you're not charging VAT), the client's legal name and address, and a clear description of the services.

Most importantly, you must include a statement explaining the VAT treatment. A common phrase is: "Services supplied to a business customer outside the UK. UK VAT rate 0%." This tells your client's finance team exactly why there's no VAT, preventing queries that delay payment.

Always agree on the currency in the contract. Will you invoice in British Pounds (GBP), Euros (EUR), or US Dollars (USD)? Invoicing in GBP is simplest for you but passes the exchange risk and bank fees to your client. Invoicing in their currency is often more attractive to them but adds complexity for you. You'll need a business bank account that can handle foreign currency, or use a service like Wise.

Getting your cross-border invoicing process right is a operational necessity. It affects your cash conversion cycle, which is the time between doing the work and having the money in your bank. A messy invoice can add weeks to that cycle.

What records do you need to keep for HMRC?

You need to keep detailed commercial and accounting records that prove your international sales are correctly treated. HMRC can ask for this evidence for up to six years after the end of the tax year the transaction relates to.

Essential records include copies of all invoices issued, contracts signed, and proof of payment received. Crucially, you also need "third-party evidence" of your client's location and business status. This could be a print from their official company registry website, a screenshot of their "About Us" page showing a foreign address, or a letterhead.

For digital marketing agencies, project initiation documents or email correspondence confirming the client's business address can also form part of this evidence trail. The goal is to build a clear audit trail that shows HMRC you did your due diligence. Poor record-keeping is a common reason agencies get tripped up by digital marketing agency international accounting rules.

How do currency fluctuations impact your agency's finances?

Currency exchange rates directly affect your profit margin on international work. If you agree a fee of $10,000 but the pound strengthens against the dollar by the time you get paid, you'll receive fewer pounds than you budgeted for.

This isn't just a theoretical risk. For an agency with 30% of its revenue in US Dollars, a 10% move in the GBP/USD rate can swing profitability by 3%. That's the difference between a good month and a bad one. You need to have a strategy, even a simple one.

The most straightforward approach is to always invoice in GBP. This transfers the exchange rate risk to your client. If they push back, you could use a "forward contract" with your bank. This locks in an exchange rate for a future date, giving you certainty. Alternatively, you could build a small buffer into your pricing for international clients to account for potential currency moves.

Monitor the exchange rates relevant to your main client currencies. A simple spreadsheet tracking the GBP value of your outstanding invoices in foreign currencies will show you your exposure. This is a key part of financial forecasting for agencies with global clients.

What are the common pitfalls and how do you avoid them?

The biggest mistake is assuming all international work is the same. Treating an EU consumer like an EU business, or a US freelancer like a US corporation, can lead to VAT errors. Another pitfall is poor invoicing, which causes payment delays and client frustration.

Many agencies also forget to factor in the higher cost of dealing with international payments. Bank transfer fees, currency conversion spreads, and slower payment times all eat into your margin. If your net profit is 15%, a 3% bank fee on an international transfer is a significant hit.

Avoid these pitfalls by creating a simple checklist for every new international client. The checklist should ask: 1) Business or Consumer? 2) Country of establishment? 3) Do we have their VAT/business number? 4) Agreed invoice currency? 5) Agreed payment method? To understand how strong your financial foundations are for handling international complexity, take our free Agency Profit Score – a quick 5-minute assessment that reveals where your agency stands on profit visibility, cash flow, and operational readiness.

Finally, don't try to navigate this alone as you scale. The rules are nuanced. What applies to a one-off project for a Canadian startup may not apply to a monthly retainer for a French multinational. Getting specialist advice early saves costly corrections later.

When should you seek professional accounting help?

You should seek help when your international revenue becomes a meaningful part of your business, or if you're unsure about the rules for a specific client. A good rule of thumb is when 20% or more of your income comes from outside the UK, or if you're planning to actively pursue international clients.

Professional help is also crucial if you're dealing with consumers in the EU, or if you have clients in multiple countries. The administrative burden of potentially registering for VAT in several jurisdictions is not something to take on without expert guidance.

A specialist accountant does more than just ensure compliance. They can advise on the most tax-efficient way to structure your international contracts. They can help you set up accounting software like Xero to correctly handle multi-currency transactions and reporting. This turns a compliance headache into a streamlined part of your operations.

In our experience working with scaling agencies, those who get professional support early on for their digital marketing agency international accounting rules avoid nasty surprises. They have more confidence to pitch for global work, knowing their finances are set up correctly. If you're expanding your client base, talking to a digital marketing agency accountant is a smart investment.