November 25th, 2020 / Insight posted in Articles

Update on VAT guidance for charities on digital advertising

Late 2018, HM Revenue & Customs (HMRC) started to express the view that the provision of digital advertising to charities did not qualify for the zero-rate relief which applies to most charity advertising. HMRC’s concern was that the selective nature of digital advertising was at odds with the requirement that adverts are made available to the public, and that the use of IP addresses, email addresses or other similar forms of recipient identification meant such adverts were essentially the same direct mail advertising, which are standard rated.

At this stage, HMRC made no public announcement on this, although they started reviewing the VAT treatment applied by various advertising agencies. High level correspondence took place between various interested parties, including the Charity Tax Group and HMRC.

At various points in 2019 a number advertising agencies changed their policies and started to charge VAT to their charitable clients for various types of digital advertising. In late 2019 and early 2020, again, without making any public announcement or changing their published guidance, HMRC started to raise assessments against a number of advertising agencies for underpaid VAT on digital advertising for charities.

On 8 September 2020 HMRC finally issued their business brief ‘Revenue and Customs Brief 13 (2020): VAT charity digital advertising relief’ which lays out their current policy.

In their policy HMRC accept that the following types of charity advert are zero-rated:

  • Behavioural Targeting
  • Channel Targeting
  • Contact Targeting
  • Daypart targeting
  • Demographic targeting
  • Device targeting
  • Direct placements on third party websites
  • Location targeting
  • Lookalike targeting
  • Pay-per-click advertising
  • Retargeting

However, HMRC conclude that the below are standard-rated:

  • Natural hits
  • Social media advertising
  • Advertising via subscription website
  • Advertising direct to e-mail accounts

Unlike the similar policy change announced some years ago for direct mail advertising, HMRC have shown no inclination to apply VAT only from a current date and are currently collecting VAT retrospectively from four years ago.
It is unclear if HMRC’s interpretation of the law is correct, however there seems little chance of HMRC amending their position without a successful legal challenge.

Considerations for charities

  • Have you been charged VAT by your agency in line with the Customs Business brief of September 2020?
  • Going forward what does this mean for how and where you spend your advertising budget?
  • What do HMRC mean by subscription only websites – what about say the Times online?
  • With further developments on the horizon for digital advertising e.g. selective TV adverts, will this become a bigger problem in the future?

Geraint Lewis is a VAT Director at Moore Kingston Smith and he recently presented at Charity Finance Week on this topic. If you would like to discuss this in more detail, please contact him directly.