HM Revenue and Customs has written to charities stating that they must pay a standard VAT rate for social media advertising, which if enforced could come at a “significant cost” to the sector.
Charities might expect advertising services to be zero-rated, but this does not apply to those distributed to a selected audience.
And as social media platforms often allow advertisers to target their activity at selected individuals or groups, HMRC has said this is not zero-rated.
A letter from an HMRC officer to a client of the accountancy firm Crowe confirms the regulator’s stance.
It says: “Advertising on social media is often targeted at selected individuals or groups. Providers use techniques such as advance tracking options and reliable conversion tracking to reach a select target audience to receive the advertisement.
“Where advertising is targeted in this way it does not meet the conditions for the charity advertising relief as it is not being communicated to the general public. The supply of advertising services will be subject to VAT at the standard rate.”
However, the letter says adverts placed in a trade or religious magazine may be zero-rated as the audience, although specific, is still considered the “general public”.
This is the first time HMRC has explicitly confirmed its stance on social media advertising relief, the cost of which to the charity sector tax expert Luigi Lungarella, VAT director at PKF Littlejohn, previously warned “could be significant”.
Speaking to Civil Society News, Richard Bray, vice chairman of the Charity Tax Group, said it was not necessarily an “open and shut” case.
“The Charity Tax Group is in discussions with HMRC over the issue and we would encourage anyone contacted by HMRC to get in contact with their professional adviser.”