Advertising services are normally subject to VAT at the standard rate. However, there is relief available to charities which allows them to benefit from the zero rate of VAT on certain forms of advertising, provided the advertisement is targeted at the general public and not a specific sector or individual.
In recent years there has been an explosion of social media advertising campaigns and there have been murmurings that HMRC is disinclined to accept that charity advertisements via social media should qualify for this relief. We are now aware that HMRC is beginning to write to charities to set out their view that, as advertising through social media is often targeted at selected individuals or groups and not to the general public, it cannot qualify for VAT relief.
HMRC is of the view that advertising from businesses such as Facebook or Google should be subject to VAT at the standard rate. Facebook and Google both belong in Ireland for VAT purposes and therefore their supplies to business customers in the UK are subject to the reverse charge. This means that it is the charity customer who must account for any UK VAT due on the supply. That VAT can be recovered subject to the normal UK VAT recovery rules. If such services should be standard rated rather than zero rated, charities who have bought in digital advertising services from overseas could owe HMRC a substantial amount of VAT depending on their VAT recovery position. We have seen a letter received by a charity from HMRC which says that errors within the last four years should be calculated and any outstanding VAT should be declared to HMRC.
Is this the end of the story?
Although HMRC seems determined to exclude social media advertising from VAT relief, this is not yet game, set and match to HMRC. The Charity Tax Group continues to work closely with HMRC on this issue and remains hopeful that HMRC can be persuaded to change their mind. The main area of contention is whether it is artificial to distinguish between non-digital targeted campaigns through a trade journal or religious magazine (which qualify for the VAT relief) and digital targeted campaigns which currently do not meet the conditions for VAT relief.
What should you do now?
Although, there is hope that HMRC may yet change their approach, it is important to address any potential VAT liability now. If you have purchased social media advertising in the last four years, or have received a letter from HMRC on this subject please contact Leila Ong at firstname.lastname@example.org, one of our VAT specialists.