Charities will be aware that zero-rating for VAT applies to the purchase of certain types of advertising by charities. During October 2019, HMRC has provided charity representative bodies with further clarification as to the circumstances in which online advertising provided to charities is subject to VAT at the standard rate.
HMRC comments may concern charities, as they state that online targeted advertising such as the use of social media platforms like Facebook or using ‘Natural hits’ (a hit on a charity website from a search engine), selects individuals for advertising and therefore is subject to VAT at the standard-rate.
HMRC’s comments on the narrowing application of zero-rating charity advertising will result in an increased cost burden for some charities.
Background to the Issue
The rise of online advertising as a medium for reaching the public has brought debate about whether the advert is truly open to the wider public. According to HMRC's comments, the key issue is whether an individual has been selected or not for advertising.
When it comes to online advertising it is complicated, as an advert on a website, such as Facebook or Google, may seem open to the wider public, but it has been tailored based on data gathered about each specific user. HMRC take the view that this advertising involves selecting an individual and therefore such supplies are excluded from zero-rating relief and should be standard-rated.
VAT Implications
Depending on the method of advertising used, who the supplier is and where they are located (inside or outside the UK), the VAT implications could include the following:
1) Some suppliers which have previously zero-rated their supplies may have to charge VAT on their supplies.
2) Earlier correspondence issued by HMRC indicated that charities will also need to consider whether the reverse charge applies to purchases of advertising from suppliers based outside the UK for the past 4 years.
Recommendations
Based on the latest comments from HMRC regarding the issue, charities should:
1) Consider whether any of their advertising purchases fall into online advertising described above;
2) Review contracts in place to determine whether suppliers are contractually entitled to charge VAT on their supplies and at risk of being subject to VAT; and
3) Consider whether the charity has any non-UK purchasing of advertising which would be subject to the VAT reverse charge mechanism with its corresponding VAT implications.
If you would like to discuss any aspect of the VAT implications of your online advertising, please do not hesitate to contact our specialist VAT teams at any of our offices:
