Charities could save millions after HMRC updates VAT guidance

The amended rules on tax relief for charities cover which types of digital advertising qualify for the zero rate and simplify the application of the policy

HM Revenue & Customs
HM Revenue & Customs

Charities could make significant savings in VAT on digital advertising costs after HM Revenue & Customs issued updated guidance. 

HMRC had previously said that most digital advertising should be subject to VAT, and had raised assessments to recover VAT from some advertising agencies. 

These costs were being passed on to charities and amounted to millions of pounds of irrecoverable VAT.

In July, HMRC said that VAT was no longer considered due on internet search browsing ads, except where they appeared on personal social media accounts.

HMRC has this week said it accepted that payments for location targeting was also within the zero rate.

Location targeting allows specific ads to be served to people in specified locations, such as countries, regions within a country, a particular radius around a location, or location groups. 

It can also include places of interest, business locations or tiered demographics.

The amendment follows discussions with the Charity Tax Group, which said: “This will not only save an element of VAT cost, but makes the application of the policy a great deal simpler, with the only boundary line as between sites where there are personal accounts and ones without.”

The CTG said the saving, which it estimated could be millions of pounds, would mean that charities would have more of their advertising budget to spend on content. 

This would be important when promoting information campaigns for beneficiaries and fundraising in a difficult environment, it said. 

The latest guidance – entitled Revenue & Customs Brief 13 (2020): VAT charity digital advertising relief – also contains guidance concerning correcting overpayments of VAT arising from its previous policy.

The CTG said it continued to disagree with HMRC’s policy on social media and subscription website advertising, and was considering its position relating to the interpretation of current law and opportunities to change the legislation to better reflect the original intentions behind the relief.

Richard Bray, vice-chair of the 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.”

Finance Tax

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