HMRC announces changes to digital advertising VAT rates for charities – Updated

Charities should now review the VAT rate applied to advertising supplied to them over the last couple of years and where the rate has changed, ask suppliers to issue credit notes for advertising previously treated as standard rated which can now be zero rated. This could result in significant VAT savings for the organisation.

Following a campaign by the Charity Tax Group, HMRC have agreed to change their policy on VAT rates applicable to digital advertising. Previously HMRC stated that certain supplies of digital advertising did not fall into the zero rating relief available for charities because the supplies were targeted advertising. They have now reconsidered certain types of digital advertising and decided that they are in fact zero-rated. Charities should note, however, that some types of digital advertising remain standard rated.

Charities should now review the VAT rate applied to advertising supplied to them over the last couple of years and where the rate has changed, ask suppliers to issue credit notes for advertising previously treated as standard rated which can now be zero rated. This could result in significant VAT savings for the organisation.

Where a charity buys services from outside the UK, it must account for VAT on the cost of those services if they are standard rated under a procedure known as reverse charge. Charities therefore should check the VAT rate applied to reverse charges on services purchased from outside the UK and make a reclaim of VAT if they have accounted for reverse charge VAT on services which HMRC now accept can be zero rated.

The tables below show the VAT rate previously advised by HMRC and the new revised VAT rate.

Zero rate advertising:

Advertising Type Description Previously Advised VAT Rate Updated VAT Rate
Audience targeting Similar use of information as demographic targeting but on a group of individuals. This will still be based on their IP addresses and direct contact. Standard rate Zero rate
Behavioural targeting Similar to retargeting – adverts displayed based on prior websites visited based on IP address. Standard rate Zero rate
Channel targeting A particular section/page of a website used to advertise. Zero rate Zero rate
Content targeting Adverts displayed alongside related content. Zero rate Zero rate
Daypart targeting Advertising at specific times of day or specific days of the week. Not a targeted selection of individuals.  Standard rate Zero Rate 
Demographic targeting Using sources of data on the targeted individual to base the advertisements on. Standard rate Zero rate
Device targeting Example is an advertiser choosing certain devices to advertise to, not targeting specific individuals. Zero rate Zero rate
Direct placements on third party websites These are advertisements and not involving selection on address. Zero rate Zero rate
Location targeting IP addresses used to target individuals in a particular area. Standard rate Zero rate
Lookalike targeting Cookies used to identify potential new customers by reviewing current customers, advertiser then directly targets the potential new clients.  Standard rate Zero rate
Pay per Click adverts These are advertisements and not involving selection on address. Zero rate Zero rate
Retargeting individuals revisiting a website The IP address of the individual is recorded and advertising is presented based on the users prior searches. Standard rate Zero rate

Standard rate advertising:

Advertising Type Description Previously Advised VAT Rate Updated VAT Rate
Email adverts Advertisements sent to email addresses Standard rate Standard rate
Natural Hits Not supplies of advertising. Standard rate Standard rate
Social media Advertising is specifically targeted at the individual’s account. Standard rate Standard rate

If you would like further advice or guidance regarding how this will affect your organisation and what you should do, please do not hesitate to contact a member of our specialist VAT and Indirect Tax partner Jonathan Main using the details below.


Jonathan Main
jonathan.main@mooreandsmalley.co.uk
01772 821021

This article originally appeared on the MHA MacIntyre Hudson website. Please find attached link to the original article here.