VAT on overseas services from April 2027 could narrow the price gap for UK digital marketing agencies

From 1 April 2027, overseas businesses selling services to UK customers that are not VAT-registered will have to charge UK VAT. For UK digital marketing agencies, web developers and designers that compete with offshore suppliers, the change removes a pricing handicap that has existed for years.

What is changing

At present, when an overseas supplier sells services to a UK business, the reverse charge shifts responsibility for the VAT to the customer. A customer that is not VAT-registered owes nothing, although HMRC’s policy paper notes that it must add its overseas purchases to its turnover when testing whether it has to register for VAT. The registration threshold is currently £90,000.

From April 2027 the reverse charge will apply only where the UK customer is VAT-registered. Where it is not, the overseas supplier must charge UK VAT and account for it to HMRC. Customers that are VAT-registered are unaffected.

HMRC gives two reasons. The first is to remove a tax advantage that unregistered businesses gain by buying from an overseas supplier, which levels the playing field for UK suppliers. The second is to simplify VAT for small businesses operating through platforms in the gig and sharing economy. HMRC expects the measure to raise £70 million in 2027/28 and £75 million a year after that, and it acknowledges that costs will rise for unregistered UK businesses buying from overseas.

What does this mean for UK agencies?

The advantage sits with the buyer, not the overseas agency. A VAT-registered UK agency has to add 20% VAT to its fees for an unregistered customer, while an overseas rival has not. After April 2027 both carry VAT, so the comparison comes down to the underlying price.

A small SEO example shows how this works. A UK business that is not VAT-registered pays an overseas agency £500 a month. A UK agency quotes £650 a month including VAT.

• Today: the overseas agency is £150 a month cheaper.

• From April 2027: the overseas fee becomes £600 with VAT, and the gap falls to £50.

Where the price gap is larger, the picture changes. Take a UK agency charging £1,000 plus VAT, or £1,200, against an overseas agency charging £600. After April 2027 the overseas agency costs £720, which is still £480 a month cheaper, though the gap has shrunk by a fifth.

Benchmark data suggests large gaps are common. In the 2024 TKM and We Are Amnet benchmark of creative production, half of the companies that offshore reported savings of 40% or more, and 48% had a partner in India. That research covers brands and agencies buying production work such as artwork and retouching, not small businesses buying SEO, so treat it as an indication of the pricing gap rather than a measure of the UK SME market.

The change matters most where the customer is not VAT-registered, already buys from an overseas supplier, and the price gap is modest. That points to sole traders, microbusinesses and smaller companies buying SEO, social media management, website maintenance or design.

How common is buying from overseas?

The Department for Business and Trade’s Longitudinal Small Business Survey 2025 found that 24% of SME employers directly imported goods or services in the last year. Some 15% bought from suppliers outside the EU, up from 13% in 2024. In the information and communications sector, 36% imported from non-EU countries.

These figures cover goods as well as services, and the survey draws its employer sample from official VAT and PAYE records. It therefore says little about the smallest unregistered businesses that will feel this change most. Nobody has published a reliable count of UK businesses using offshore marketing agencies.

Large platforms are unlikely to see much change

Google and Meta already ask UK advertisers for a VAT number. Meta’s Help Centre says registered businesses should add theirs to avoid VAT being added to ad purchases. Advertisers that do not provide one are generally charged VAT. The biggest shift will be among smaller suppliers that currently invoice unregistered UK customers without VAT.

Whether those suppliers register and comply is a separate question. HMRC expects overseas suppliers to register, keep records and file UK VAT returns. Some small offshore providers may absorb the VAT, raise prices or stop selling to UK customers. Do not assume a uniform 20% increase.

Points for UK agencies and service providers

Check your own VAT position. An agency below the registration threshold charges no VAT and is not at a disadvantage against overseas rivals. As it grows towards £90,000, that advantage ends, so plan the registration date and your pricing.

Look at your own offshore suppliers. If your agency is below the threshold and uses offshore partners for production or white-label work, those invoices will carry UK VAT from April 2027 that you cannot reclaim.

Compare on net prices. When competing for unregistered clients, quote on the basis that VAT now applies to both sides. Be ready to explain value beyond price, such as response times, accountability and local market knowledge.

Model the effect on margins and capacity. Winning more clients means more people, tools and working capital. Test the forecast before committing to hires.

Advise clients on their own position. Customers that are not VAT-registered and buy overseas services will see invoices change. Some may need to consider voluntary registration, which suits only businesses whose own customers can recover VAT.

Beyond digital marketing

The same logic applies to web design, graphic design, software development and outsourced administrative support, wherever UK providers compete with offshore suppliers for unregistered customers.

Liverpool City Region is home to around 6,500 digital and creative technology businesses, employing more than 51,000 people, according to Invest Liverpool City Region. About 20,000 of those are freelancers, it says. With so many freelancers and small operators in the sector, the £90,000 VAT registration threshold is a live question for many local agencies.

For Greater Manchester, comparable agency-level figures are harder to find. Manchester Digital’s Sector Insights Report 2026 found that 80% of the region’s tech leaders are confident about business growth this year, but it covers the wider digital and technology sector rather than agencies alone.

If you are an agency or service provider reviewing your pricing, VAT registration timing or offshore supply costs ahead of April 2027, get in touch with our Digital & Creative lead, Daniel Moon below: