24 January 2020
In this article, we comment on what this means for charities and their VAT accounting, and recommended actions for the future.
Some advertising, when supplied to a charity, is zero rated for VAT. To meet the conditions for this relief, the advertising, which may be supplied through either physical or electronic media, must be communicated to the public. The general public does not include selected individuals or groups. These are people who are:
- selected by individual home, business or email address, whether named or not;
- individually named people, all those at the same address, such as family groups, or everyone in a particular building.
HMRC’s view is that advertising on social media is ‘targeted’ at selected individuals or groups because providers use techniques such as tracking to reach a specific audience to receive the advert. They say that where an advert is targeted in this way, it does not meet the conditions for the charity advertising relief, as it is not being communicated to the general public, and is therefore a standard-rated marketing service.
That means UK suppliers of such digital adverting are required to charge VAT to charities. As social media suppliers are mainly based overseas, it also means that reverse charge VAT must be paid by charities receiving marketing services from these suppliers, and in many cases this will represent a significant cost. (No reverse charge VAT is due on other advertising services received from overseas as these remain zero rated.)
Tax advisers have expressed doubts that HMRC’s views on how digital advertising works are correct. The Charity Tax Group has discussed the issue with HMRC and taken legal advice on the topic, but although they have made no public announcements, HMRC has not changed its position. Instead, we are aware that visiting officers have begun raising assessments. So far, there does not appear to be any legal challenge to HMRC on the horizon.
What should you do?
Charities that receive these digital advertising services from UK suppliers should be prepared for suppliers to charge VAT in future. Charities that receive them from overseas suppliers, such as Facebook and Google, should be prepared and make the necessary provisions for reverse charge VAT. HMRC can assess for reverse charge VAT due on advertising paid for within the last four years.