The situation
In early 2025, a five-person PPC agency based in Manchester’s Northern Quarter approached us. They’d been trading for four years, specialising in paid search and paid social for e-commerce brands. Revenue had grown from £320,000 in year one to £1.1 million in their most recent financial year. Their client list included a mix of Shopify stores and Klaviyo-driven email campaigns, and they used Xero for bookkeeping, Float for cash flow forecasting, and a suite of Google Ads and Meta Ads tools.
The agency was profitable, net profit around £180,000, but the directors were frustrated. They’d heard about R&D tax credits but assumed they were only for tech startups building software, not for a service business running ad campaigns. Their accountant at the time had dismissed the idea, saying “PPC isn’t R&D.”
They came to us after a referral from another agency founder who’d successfully claimed. Their question was simple: “Can we really claim for what we do every day?”
The decision
The directors needed to decide whether to invest time and money in preparing a first-time R&D claim. The process would require digging through two years of project notes, client emails, and campaign data. They also needed to understand the risk, HMRC’s R&D rules are strict, and a failed claim could trigger an enquiry.
Specifically, they wanted to know:
- Which projects qualified as R&D under the current rules
- How to calculate the eligible costs (staff time, software, subcontractors)
- Whether the claim would be worth the effort, they’d heard figures of £20,000–£50,000 but had no benchmark
- How to structure future projects to maximise claims in year two and beyond
What we modelled
We started by reviewing their project pipeline for the last two financial years. The agency had worked on 14 major campaigns, but only six involved genuine technical uncertainty, the legal test for R&D. The others were standard optimisation work: adjusting bids, testing ad copy, or scaling budgets.
The six qualifying projects all involved developing new bidding algorithms, custom attribution models, or automated reporting systems. For example:
- Building a machine learning model to predict ROAS across 12 client accounts, using historical data from Google Ads and Klaviyo. The team spent three months iterating on the model because off-the-shelf tools couldn’t handle the multi-channel complexity.
- Creating a proprietary dashboard that pulled real-time data from Meta Ads, Google Ads, and Shopify into a single view, solving a data integration problem that no existing tool (including Supermetrics) could address without heavy customisation.
- Developing a script to automate A/B testing of landing pages across 40+ campaigns, which required writing custom JavaScript and working with their developers to handle API rate limits.
We modelled two scenarios:
Scenario A: Claim for year one only (2023/24)
Eligible costs: £145,000 (staff time: £98,000; software licences: £22,000; subcontractor costs: £25,000). Under the R&D SME scheme, the enhanced expenditure (130% uplift) gave a total qualifying spend of £333,500. At 19% corporation tax rate (they were under the £250,000 profit threshold for the small profits rate), the payable credit was £63,365. After accounting for the surrender of losses and the notional tax calculation, the net benefit was £62,000.
Scenario B: Claim for year one and year two together (2023/24 and 2024/25)
Year two eligible costs were higher at £210,000, reflecting more staff time and a new subcontractor. The combined claim would be worth approximately £91,000 in year two alone (using 2024/25 rates), plus the £62,000 from year one, total £153,000. However, this would require more documentation and a longer HMRC review period.
We also modelled the impact on their corporation tax bill. Without the claim, they’d pay £34,200 in tax on £180,000 profit. With the claim, they’d receive a cash refund of £62,000, effectively turning a tax liability into a cash injection.
The outcome
The directors chose Scenario A, claiming for year one only, with a view to filing year two separately. They wanted to test the process with a smaller claim before committing to a larger one. The claim was prepared over six weeks, with our team working alongside their lead strategist to document the technical uncertainties, the methods used, and the outcomes.
The claim was submitted in May 2025. HMRC processed it in nine weeks, faster than the typical 12–16 weeks, and the £62,000 landed in the agency’s business account in July 2025. The directors used the cash to hire a junior data analyst, upgrade their reporting stack, and pay down a £15,000 overdraft.
For year two, they’ve already structured their projects to maximise eligibility. They’re now tracking staff time on R&D projects using a dedicated code in FreeAgent, and they’ve hired a part-time developer to handle the technical work. Their expected claim for 2024/25 is £91,000, and they’re planning to claim annually going forward.
The agency’s net profit margin improved from 16% to 22% after the first claim, and the cash injection gave them the confidence to pitch for larger clients. They’ve since won two £200,000+ retainers.
What others can learn
- PPC work can qualify as R&D if it involves technical uncertainty. Standard campaign management doesn’t count, but developing new algorithms, custom integrations, or automated systems that solve a genuine technical problem does. The key is whether you had to overcome uncertainty that a competent professional in your field couldn’t resolve without experimentation.
- Documentation is everything. HMRC expects to see contemporaneous records: project briefs, meeting notes, test results, and time logs. The agency had Slack threads and Trello boards that proved invaluable. If you’re not documenting your R&D work as you go, start now.
- The first claim is the hardest, but it sets the template. Expect to spend 4–8 weeks gathering evidence for a first claim. Once you have a methodology, subsequent years are much faster, the agency’s year two claim took three weeks to prepare.
- Don’t let your accountant dismiss the idea without a proper review. Many general practice accountants don’t understand R&D in a services context. Work with a specialist who knows the HMRC guidelines for software and digital projects.
- Cash from R&D credits can transform your growth trajectory. £62,000 on £1.1 million revenue is a 5.6% boost, enough to hire a key person, invest in tools, or reduce debt. For a five-person agency, that’s a material difference.