Electronic Advertising VAT : Is It one Rule for Charities and Another for Political Parties ?
One of the current hot topics with charity VAT is the treatment of electronic advertising and whether it can be zero rated.
With a traditional advert such as an billboard, poster or newspaper advert the VAT treatment is straightforward – if you are a charity that buys space owned by a third party then you get the advert zero rated and don’t pay VAT. The advert will be seen by everyone that passes the poster or reads the paper regardless of whether they are going to be interested.
With electronic advertising, such as that provided by social media the situation is rather different. If you advertise on, for example, Google or Facebook then you don’t get your advert or post seen by all of the billions of users but by a group of users. The criteria used to determine this group can be very very sophisticated indeed as the electronic advertising providers know a lot about their users.
The VAT question posed by this is whether this means that the persons receiving the advert are selected, as any pre selection, including random pre section by third party excludes the advert from the zero rate. HMRC now take the view that this process does constitute pre selection and the zero rate does not apply.
As the legislation is worded, I suspect HMRC are technically correct. However, they appear to have remarkable powers of interpretation when it suits them and it does seem to me rather unreasonable of them to seek to apply VAT on such adverts. Advertising has changed and the VAT rules should keep up.
Unfortunately, HMRC appear to be deaf to such pleas and are insisting that such adverts are subject to VAT. Of course in practice many of these adverts do not have UK VAT charged directly as the providers are based outside the UK – often in Dublin. This means they are subject to the VAT reverse charge.
A lot of charities are finding that they have fallen foul of these rules and are being assessed by HMRC – sometimes for 6 figure sums for VAT due on the various Facebook and other electronic media campaigns they have purchased.
It is worth pointing out that since 2010 the reverse charge on adverts purchased from abroad has a very wide scope. It applies not just to adverts purchased for business purposes but also non business, non private purposes, by a VAT registered person. So a VAT registered charity that runs a Facebook campaign to raise donations will be caught. A VAT registered campaign organisation that buys adverts to raise awareness of an issue will be caught.
I was therefore rather surprised, when looking through the electoral returns published by the Electoral Commission for the 2015 General Election that there appeared to be no VAT accounted for on electronic adverts that would appear to be subject to the reverse charge. I contacted HMRC who confirmed that there is no concessionary treatment for political election advertising.The Electoral Commission confirmed that if there was reverse charge VAT due then it should appear on the election returns.
All of the parties spent money on electronic advertising so any invoice details I quote should not be taken as a partisan attack. Examples from 2015 are the invoice for Conservative Party Facebook advertising see 2015 Conservative Invoice or 2015 Labour Invoice . Google advertising was also VAT free, although here it was actually stated on the invoice that a reverse charge was due. See. See Google Invoice
Where is any of this VAT recorded on the returns. I cannot find it. It is certainly not recorded against the individual invoice entry. If its not on the election returns because the VAT wasn’t accounted for then one presumes that the VAT returns are wrong but election returns correct. If it was accounted for then the election returns are potentially wrong and we could be talking of millions in VAT and potentially parties exceeding election spending limits. So very deep waters indeed.
Things get even stranger for the 17 election as here Facebook invoiced for some adverts from the UK and charged UK VAT. I am sure this was quite correct but its interesting that it was true of only some invoices. Thus whilst the Conservative party this time paid UK VAT see 2017 Conservative Facebook Invoice the Greens, for example, did not. See Green 2017 Invoice
If the parties did in fact account to HMRC for reverse charge VAT then it is not perhaps surprising it wasn’t declared on the election returns as the Electoral Commission guidance doesn’t appear to mention the possibility. Since the reverse charge has applied to such advertising for 8 years now this omission is perhaps odd.
I accept that there may be a question as to whether the reverse charge should apply to all advertisements or just national campaigns as election law regards candidates as individuals. A local candidate is unlikely to be VAT registered. But national political parties are registered and should surely be treated as any other Trader.
The providers of services to political parties and charities alike are not doing anything wrong when they don’t charge UK VAT when they invoice from outside the UK. The onus is on the recipient to correctly account for VAT. As HMRC are saying to every charity they assess for non declared VAT under the electronic advert reverse charge.
I hope the parties did and do correctly account for VAT on reverse charge supplies. I can see no good reason why a campaign group, trade union or membership body should have to pay VAT on a campaign against say homelessness or fund irrecoverable VAT if it purchases a new database system but a political party should not.
In the case of electronic advertising, if HMRC want to be bloody minded to the third sector and assess it for hundreds of thousands they should be equally bloody minded to all.