HMRC has issued a brief on VAT and digital advertising by charities, which confirms that many forms of online advertising will now be zero-rated.
The move follows a three-year campaign by sector body the Charity Tax Group (CTG) and is set to see the cost charities incur when they advertise online greatly reduced.
The zero-rate of VAT applies for advertising services supplied by a third party to a charity when the services are designed for the general public. However, advertising services that are more targeted (e.g. where a member of the public has been selected to receive the advertising) are excluded from the zero-rate.
Previously, HMRC ruled that most digital advertising should be subject to VAT and had raised assessments to recover VAT from some advertising agencies. These costs were generally being passed on to charities.
CTG received a letter from HMRC in July, confirming that VAT was no longer considered due on internet search browsing advertisements, except where they appear on personal social media accounts.
HMRC has now published a brief to confirm the views expressed in the letter. It says it has reviewed a range of digital advertising situations, and has accepted that some, though not all, of the situations raised by CTG are eligible for the zero-rate. In addition, HMRC has also now accepted that payments for ‘location targeting’ are within the zero-rate.
The inclusion of ‘location targeting’ in the zero-rate followed further discussion between CTG and HMRC. CTG has welcomed this change, which it says will not only save money, but makes the application of the policy simpler.
Digital advertising that is now zero-rated
This is defined by HMRC as the use of demographic, behavioural and other third-party data to identify a target audience and placing advertisements related to that data as they browse elsewhere.
Using cookies to identify people who have visited websites or made relevant searches and placing advertisements for associated goods and services which are shown as they browse elsewhere.
A specific section of a website used to place advertisements.
Advertisements displayed alongside specific content.
Choosing to advertise at particular times of the day or on particular days of the week to more effectively target an audience, but not to target specific individuals.
Using various data sources to identify target audiences. Examples given by HMRC include logged in and behavioural data. The advertisements will be related to that data as they browse elsewhere.
Choosing to advertise to only certain types of device.
Direct placements on third party websites
HMRC defines this as placing an advertisement on a website without any decisions involving recipients. The choice of website is the main consideration.
HMRC explains this is where individuals opt in to provide location data, and this information is collected and combined into large datasets to target audiences who have visited particular areas. Advertisements relating to that data are then displayed as they browse elsewhere. No personal data or survey results are collected. Also similar to behavioural targeting.
Cookies are used to identify potential new customers by looking at similar behaviours and interests of existing customers.
Used to drive traffic to a website. The advertiser pays a fee to the search engine every time its website is accessed through the sponsored link.
Using cookies to track visitors to your website and find them again when they browse the internet.
Digital advertising that is standard rated
Advertisements sent to specific individual email addresses.
Natural hits are generated by the listing of a charity in the results of a search engine and are not considered to be advertisements for VAT relief by HMRC.
Social media/subscription website accounts
Advertising is specifically targeted at individuals when they sign into their social media or website subscription accounts.
Design and production of advertisements
HMRC’s brief states if the advertisement being published qualifies for the zero-rate, the copyright, design and production services will also qualify.
This does not extend to services supplied by copywriters and designers for the purpose of search engine optimisation, which involves structuring a website so that it contains as many keywords as possible. These services involve the optimisation of a charity’s own website and are specifically excluded from the relief.
Making claims or adjustments
Businesses that have accounted for and paid VAT on supplies of charity advertisements that are now considered to be zero-rated can submit claims for overpaid tax for the last four years.
Whilst the changes are good news, the zero-rate relief for charity advertising is still a complex area of VAT. It is important that charities carefully consider the impact of HMRC’s new policy on their individual arrangements.
To read the brief in full click here.
If you have any questions about zero-rate VAT on digital advertising, please contact VAT partner Alison Birch.