The Charity Tax Group (CTG) has said that a tax on social media adverts could cost charities millions and said it is seeking legal advice to challenge HMRC's position.
Charities have traditionally had their VAT obligations for advertising zero-rated unless the recipients “are selected by or on behalf of the charity”.
Speaking at the Annual Tax Conference on Tuesday, CTG technical adviser Graham Elliott said the HM Revenue and Customs had confirmed that when charities advertise on social media through advanced targeting options, it does not qualify for tax relief.
A typical example would be when a member of the public expresses and interest in a topic by “liking” something and subsequently is presented with adverts on similar topics.
Elliott said this ruling would make charity advertising relief “a dead duck” because charities will not be advertising much through other channels as technology develops.
He said this would lead to charities losing out on “hundreds of thousands, if not millions of pounds of VAT charity advertising relief in the future”.
Seeking legal advice
Elliott said CTG was seeking legal advice as it believes the relief should be applied for social media advertising because the selection is still being done by members of the public by choosing to “like” or click on certain topics, rather than the charities advertising.
He said: “We are going to consult a barrister. We have sought funding to get an initial view. The view is going to consider whether HMRC, if it wants to be aggressive, can be effectively challenged on this point of view and what kind of case will it take.”
Elliott then urged charities in attendance to challenge such an imposition of VAT if their advertising agency tried to charge them the extra money.
He said: “As charities you have to be robust and say ‘we might be paying you but we reserve the right to try and knock this over with your help’. Try and be cooperative but don’t just say ‘here’s the chequebook’. That I don’t think would be the right thing to do.”
An HMRC spokesman told Civil Society News in October that its position referred to the guidance, VAT Notice 701/58.
He said: “Charities benefit from zero rating on their purchases of a wide range of advertising services, including the use of electronic media.
“But this does not include distribution services, whether, for example, by post, delivery or internet-enabled, nor does it include advertising for use on a charity’s own website.”
HMRC has been asked for an update on its position.