Online Advertising – New HMRC Policy

Many charities make use of social media advertising, such as that provided by Facebook. These providers will often invoice from Ireland without  any Irish VAT and in such cases the VAT will be the responsibility of the advertising purchaser under the reverse charge rules. Under these rules if you purchase a service from abroad  you account for UK VAT, if due, on your VAT return. 

In the case of electronic advertising purchased by charities, this has not historically been an issue as HMRC have generally accepted that advertising provided to a charity is zero rated and that no reverse charge VAT has been due. Unfortunately over the last few years they have changed their approach and now argue that such advertising is excluded from the charity advertising zero rate and subject to VAT.  The HMRC reason for this is that the charity zero rate does not apply to adverts sent to selected individuals, an exclusion designed to exclude direct mail as the legislation is pre internet. When you advertise on Facebook you have to pre select your audience – unless you want it to go to 2.7 billion people. You are likely to design your campaign so your message is seen by a certain demographic in your area – based crucially on information that Facebook has about its users. 

HMRC have sought to stop the zero rate applying to a wide range of electronic adverts. They have been expertly challenged on this by the Charity Tax Group and slightly pulled back, now accepting that adverts that are geographically targeted can be zero rated if they appear when people browse the internet and are based on very general data fields and not because of personal information about the individual. They still hold to their view that social media adverts, that are seen by individuals because of information the social media company has about them – where they live, what they like etc, is taxable at the standard rate. HMRC have issued a new business brief that explains their policy. See 

https://www.gov.uk/government/publications/revenue-and-customs-brief-13-2020-vat-charity-digital-advertising-relief/revenue-and-customs-brief-13-2020-vat-charity-digital-advertising-relief

If you do buy a service that HMRC believe should be subject to a reverse charge it is as well to ensure you account for VAT upon it to avoid penalties as HMRC are seeking to enforce their new policy. Whether this VAT will be recoverable will depend upon what the advert is aimed at achieving.

Let’s hope that HMRC eventually agree to change their policy or the law to allow all social media adverts to be zero rated. The tax must keep up with technology and targeted adverts are now very much the norm.