New VAT guidance for charities on digital advertising
HMRC have issued some long awaited guidance on the VAT treatment of digital advertising by charities following a period of negotiation with the various interested parties.
The good news is that HMRC have backed away from their original position that most forms of digital advertising by charities should be standard rated. They have accepted that although most digital advertising involves some degree of audience selection, the following types of digital advertising by charities are properly zero rated:
- Audience Targeting
- Behavioural Targeting
- Channel Targeting
- Content Targeting
- Daypart Targeting
- Demographic Targeting
- Device Targeting
- Lookalike Targeting
- Retargeting
- Direct Placements
HMRC has also reconfirmed their previous advice that pay-per-click advertising by charities qualifies for the zero rate.
However, HMRC is continuing to maintain that so called ‘natural hits’ and, more importantly advertising delivered via social media or subscription websites is standard rated, and they continue to issue assessments against media companies charging VAT on these types of charity adverts for the last four years.
While HMRC’s decision to treat some types of digital advertising by charities as zero-rated is to be welcomed, their continued insistence that social media advertising by charities should be subject to VAT will make this type of digital marketing more expensive for UK charities. HMRC’s decision to apply the policy retrospectively is in sharp contrast to the approach they took some years ago in relation to the VAT treatment of direct marketing and will leave the sector facing a large additional tax bill.
Many charities will already have been approached by their media agencies seeking additional VAT payments for the last four years, and similar requests from those agencies who have yet to address this problem can be expected over the coming months. Charites need to review their contracts with media partners to ensure that any additional VAT can indeed be charged.
It’s highly likely HMRC’s policy on social media adverts will be challenged in the courts, so charities also need to ensure that their media partners are submitting the necessary protective claims to ensure that any VAT paid in accordance with HMRC’s current policy can be recovered should a future legal challenge prove successful.