Charities have been warned not to expect zero-rated VAT relief for targeted advertisements on social media.
Writing in Charity Finance, Luigi Lungarella, director – indirect tax at PKF Littlejohn, warns that charities which pay for social media advertising could be hit with a surprise bill if they are under the misconception the service would be zero-rated.
While advertising services are usually zero-rated, this does not apply to those distributed to a selected audience.
Selective advertising on social media is an increasingly common practice by advertisers so Lungarella warns charities that this service will not be zero-rated.
He writes: “In common with most businesses, charities are increasingly utilising social media as a means of reaching their target audience. Social media advertising (such as on LinkedIn, Facebook and Twitter) has the ability to target and reach a far more selected audience by using users’ own shared information to identify topics of interest.
“As a result of the tendency of advertisers to make use of features such as advanced targeting options and reliable conversion tracking, it is understood that HMRC is challenging the application of zero rating to social media advertising.
“The argument appears to be that such forms of communication are aimed at individual users, rather than the general public, and are therefore subject to VAT at the standard rate. The cost to charities VAT relief for social media advertising under threat could be significant.”
The relevant legislation is in Items 8 and 8a of Group 15, Schedule 8, VAT Act 1994. This provides the relief on supplies of advertising services but only where the advertisements are placed for general consumption.
The legislation disapplies the relief where members of the public are selected by or on behalf of the charity.
An HMRC spokesperson 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.”
Luigi Lungarella's full technical briefing features in the October edition of Charity Finance