Marketing your startup on a lean budget: payback, tax and where to spend

By Buzz Accounting · 13 July 2026

Low-cost marketing for a startup usually means referrals, partnerships, email, content, online communities, PR and, later, paid ads.

Whether the spending pays off depends on three numbers: what one customer costs to win, how long it takes to earn that cost back, and what each pound of marketing costs after Corporation Tax. With those numbers you can see which routes to spend more on, and which could leave the company short of cash.

Payback period

The payback period is the number of months of a customer's contribution it takes to repay what you spent winning them. For an early-stage company it matters more than return on ad spend, cost per click or impressions, because the company fails if it runs out of cash. A campaign that takes fourteen months to pay back can run a company with four months of cash out of money, even if the campaign's lifetime return is high.

You need three figures:

Acquisition cost — total spend on winning customers in a period, divided by the customers won in that period. Include ad spend, tools, freelancers, and any staff time you pay for.
Contribution per month — the price less the direct cost of serving that customer. Revenue would overstate it, because revenue ignores those costs.
Expected life — how many months a customer stays. Early on this is an estimate, so keep it cautious and review it every quarter.

Worked example one — illustrative figures. A startup selling a £95-a-month service, costing £19 a month to deliver, so contribution is £76 a month.
• It spends £900 on ads in a month and gets 300 clicks at £3.00.
• 8% start a trial: 24 trials. A quarter of trials convert: 6 customers.
• Acquisition cost = £900 ÷ 6 = £150.
• Payback = £150 ÷ £76 = 2.0 months. At an average life of 20 months, lifetime contribution is £1,520 against £150 of cost, about ten times as much.
Now suppose the share of trials that become paying customers falls from 25% to 10%, so 24 trials become 2 customers. Acquisition cost rises to £450 and payback to 5.9 months, on the same ads, clicks and spend. Cost per click alone would not show this change.

As a rough guide at this stage: if payback is under three months, spend more; between three and six months, spend carefully and watch cash; over twelve months, stop spending and improve conversion or retention first. Paying for twice the traffic roughly doubles the spend, while a higher conversion rate lowers the acquisition cost on the same spend.

The cost of marketing after Corporation Tax

Marketing is an allowable deduction against trading profit, so a profitable company gets part of the cost back through lower Corporation Tax. For the financial year starting 1 April 2026 the Corporation Tax rates are unchanged: 19% on profits up to £50,000, 25% above £250,000, and marginal relief in between, which produces an effective marginal rate of 26.5% on each extra pound of profit inside that band.

Worked example two — the same £900, three different companies.
• Profits of £40,000 (19%): the £900 saves £171. Net cost £729, so the acquisition cost after tax is £121.50.
• Profits of £120,000 (26.5% marginal): the £900 saves £238.50. Net cost £661.50, so the acquisition cost after tax is £110.25.
• Loss-making: no tax saving this year. The £900 increases the trading loss, which can be carried forward against future profits, so the relief comes later.
This year, the loss-making startup pays 36% more in cash for the same campaign than the company in the marginal band (£900 against £661.50), so payback matters even more for it.

Three tax rules that affect marketing costs

1. Overseas ad spend counts towards your VAT threshold

Google and Meta invoice UK advertisers from Ireland. The invoice shows 0% VAT and an Irish billing address because the reverse charge applies, which means you, the customer, account for the VAT.

HMRC's registration guidance says your taxable turnover for the £90,000 registration threshold includes services you received from businesses in other countries that you had to reverse charge. Those services count alongside your own sales.

Worked example three — illustrative figures. A startup bills £78,000 of UK sales over twelve months and spends £14,000 on Google and Meta ads in the same period.
• Sales alone: £78,000, which is under the threshold.
• Taxable turnover for the threshold test: £78,000 + £14,000 = £92,000, which is over the £90,000 threshold.
• The company must register. If it registers late, it owes VAT on past sales it did not charge VAT on, and it may be charged a penalty.
A startup that is increasing its ad spend quickly should include overseas ad invoices when it checks the threshold. Our VAT guide for startups covers the timing rules.

2. Client entertaining is never deductible

Meals, drinks, tickets and event hospitality for clients are all disallowed for Corporation Tax, and the VAT on entertaining UK business contacts cannot be reclaimed either. A £400 client dinner gives no tax relief. Staff entertaining is treated differently: VAT on entertaining employees can be reclaimed, and there is a separate exemption for annual staff events.

3. Business gifts

A gift is deductible only if the gifts to one person cost no more than £50 in total in an accounting period, and the gift carries a conspicuous advertisement for your business on the gift itself. Advertising on the wrapping alone is not enough. Food, drink, tobacco and vouchers exchangeable for goods are never deductible, whatever they cost and however they are branded.

So an £18 branded notebook is allowable, but an £18 bottle of wine is not, because it is drink. A £60 branded jacket is over the limit, and the whole £60 is disallowed. Two £30 branded items to the same client in one accounting period are also disallowed, because the limit covers all gifts to that person.

Seven marketing routes, from lowest cash cost

These routes are in rough order of cash cost, lowest first.

Referrals. Ask satisfied customers to introduce you to others who could use your product. Referrals cost little or nothing in cash, and referred customers often convert faster and stay longer, which improves both halves of the payback calculation. Ask routinely, for example when a customer renews.
Partnerships. Find businesses that serve your customers without competing with you, and refer customers to each other. The cash cost is close to nil. Relying on one partner for most of your customers creates the concentration risk that investors check.
Email. An email list lets you contact people directly without relying on a social media platform. Start collecting addresses from the first week. Under the Privacy and Electronic Communications Regulations, sole traders and ordinary partnerships count as individuals, so you need their consent, or a soft opt-in, before sending them marketing emails. Limited companies and limited liability partnerships do not count as individuals under these rules.
Content and search. Useful articles cost time more than money. Publish regularly, for example one useful piece a week. Search traffic builds slowly and keeps arriving after the work is done.
Online communities. Take part in the forums, groups and Slack workspaces where your customers already talk. It takes time, and automated posts do not work there.
PR. Journalists need expert sources quickly. Replying promptly to their requests with useful comment can earn coverage and links to your website.
Paid ads. Start these last. Traffic from ads stops when you stop paying, and ads bought from overseas platforms count towards the VAT registration threshold. Use paid ads once you know your payback period.

Choose two of these routes and run them every week for at least a quarter. Record where every enquiry comes from, so you know which route produced each customer.

What to do this week

Work out your acquisition cost for last quarter. Divide total spend on winning customers by the number of customers won.
Work out contribution per customer per month, which is the price less the direct cost of delivery. Divide the acquisition cost by it to get your payback period in months, then use the guide above to decide whether to spend more.
Add up twelve months of Google, Meta, LinkedIn and overseas software invoices, add it to your UK sales, and compare the total with £90,000.
Record the source of every enquiry, even if only in a spreadsheet column, so you can work out the acquisition cost for each route.
Check your gift and entertaining spend against the rules above before it goes into the accounts, so disallowed costs are not claimed.
Put your marketing spend into your cashflow forecast as a monthly line. A four-month payback only works if your runway is longer than four months. See our runway and forecasting guide.

How we help

We build monthly reporting that shows your acquisition cost, contribution per customer and runway. We also track your turnover against the VAT registration threshold and keep disallowed entertaining and gift costs out of your tax computation. See what it costs, or get started.

Common questions

How much should a startup spend on marketing?

Work out the payback period first. A percentage-of-revenue rule does not show how long your cash will last. Calculate what one customer costs to acquire, divide by their monthly contribution, and you have the payback period in months. Under three months and you can generally afford to spend more; three to six means spending carefully while watching the bank balance; beyond twelve months you should stop and fix conversion or retention before adding another pound. Early on, the limit is usually how much cash you have. A campaign with a high lifetime return and a long payback can still run a well-funded company out of cash.

Is marketing spend tax deductible for a limited company?

Advertising and marketing are allowable deductions against trading profit, including advertising in newspapers and directories, mailshots, free samples and website costs. What that is worth depends on your profit level. For the financial year starting 1 April 2026 the small profits rate is 19% up to £50,000 and the main rate is 25% above £250,000, with marginal relief in between producing an effective 26.5% on each extra pound in that band. A loss-making startup gets no relief in the current year. The spend increases the trading loss, which can be carried forward against future profits. Client entertaining is never deductible, whatever your profit level.

Do I pay VAT on Google Ads and Facebook ads in the UK?

Google and Meta invoice UK advertisers from Ireland, so the invoice typically shows 0% VAT with an Irish billing address. The zero reflects the reverse charge, which makes you, the customer, responsible for accounting for the VAT. If you are VAT registered you declare the same amount as both output tax and input tax on your return, so for a fully taxable business the net effect is usually nil. For a business that is not yet registered, HMRC counts reverse-charge services received from overseas towards your taxable turnover for the £90,000 registration threshold, alongside your own sales.

Can I claim client entertaining or business gifts against tax?

Client entertaining, including event hospitality, is disallowed for Corporation Tax outright, and the VAT on entertaining UK business contacts cannot be reclaimed either, so a client dinner gets no tax relief. Gifts are allowable only within narrow limits. They must cost no more than £50 per recipient per accounting period, and the gift must carry a conspicuous advertisement for your business on the item itself. Advertising on the packaging alone is not enough. Food, drink, tobacco and vouchers exchangeable for goods are excluded whatever they cost. The £50 limit covers all gifts to the same person in the period, so two £30 branded items to the same client are both disallowed.

What is a good customer acquisition cost for a startup?

There is no single figure, because an acquisition cost only means something next to what a customer is worth and how quickly you recover the cost. A £600 acquisition cost is repaid in a month and a half by a customer contributing £400 a month, and takes two years to repay from a customer contributing £25 a month. Judge it two ways. First, payback: acquisition cost divided by monthly contribution, ideally under six months while cash is tight. Second, the lifetime ratio: contribution over the expected customer life divided by acquisition cost. Roughly three to one is workable, and ten to one suggests a route worth spending more on. Track both for each route separately.

Should a startup spend on paid ads before content and referrals?

It is usually better to start with referrals, partnerships and content. Referrals and partnerships tend to have the lowest acquisition cost, and they often bring customers who convert faster and stay longer, which improves both halves of the payback calculation. Content costs time more than money, and the search traffic it brings keeps building. Traffic from paid ads stops when you stop paying, and ads bought from overseas platforms count towards the £90,000 VAT registration threshold through the reverse charge. Use the low-cost routes first to learn what converts and what a customer is worth, then spend on ads once you know those numbers.