Charities could save millions on digital advertising costs after HMRC updated its VAT guidance, according to the Charity Tax Group (CTG).
HMRC previously said that most digital advertising should be subject to VAT. It had raised assessments to recover VAT from some advertising agencies.
These costs were generally being passed on to charities and amounted to millions of pounds of irrecoverable VAT, according to CTG,
CTG had been engaging with HMRC on this and received a letter in July 2020 which confirmed that VAT was no longer considered due on internet search browsing advertisements, except where they appear on personal social media accounts.
HMRC has issued Revenue & Customs Brief 13 (2020): VAT charity digital advertising relief to confirm the views expressed in the letter. HMRC has also now accepted that payments for location targeting are within the zero rate.
Location targeting allows specific ads to be served to people in particular locations, such as countries, regions within a country, a particular radius around a location, or location groups.
CTG has said it welcomes this change as it will save an element of VAT cost and make the application of the policy simpler.
Richard Bray, vice chairman at CTG, said: “We are delighted that after further positive discussions we have had with HMRC, their view of the VAT status of digital advertising provided to charities has been clarified even further.
“Not only have they accepted a wider ambit for the zero rate, but the classifications of services, based on their policy, will be much easier to apply than appeared the case before the Brief was issued. It is great news for charities.”
CTG continues to disagree with HMRC’s policy on social media and subscription website advertising.
These are regarded by HMRC as standard rated for VAT purposes, whereas all other forms of digital advertising are zero rated.
HMRC is targeting more charities over VAT on advertising, says Robert Warne, partner and head of VAT at Crowe, but there may be ways to resist this.