A change in tax policy on ‘digital advertising’ is expecting to result in “significant” savings for charities following a campaign by the Charity Tax Group (CTG).
In a previous ruling, HM Revenue and Customs (HMRC) had said digital advertising should be subject to VAT, and sought to raise assessments to recover VAT from some advertising agencies.
According to the CTG, this would result in “millions of pounds of irrecoverable VAT” being passed on to charities.
The group has campaigned against HMRC for more than two years over the issue, and sent a letter to the chancellor in March this year asking for a number of tax measures to be relaxed during the coronavirus outbreak.
In a letter sent to the membership group earlier this month, HMRC clarified its position on digital advertising.
The tax department now accepts that VAT is no longer considered due on the majority of internet search browsing advertisements, and its letter sets out the categories of advertisements that fall into this category.
All advertising sent to a social media address that is a ‘personal account’, or where the recipient has paid a subscription for the site, will continue to be treated by HMRC as standard rated for VAT purposes.
The letter additionally suggests that a review of the VAT legislation will be incorporated into a broader review of the future regulation of advertising by the Department for Digital, Culture, Media and Sport.
Richard Bray, vice-chairman at CTG, welcomed the development as “good news for charities.”
“[The clarification] will result in significant VAT savings on the cost of many forms of digital advertising at a time when [charities] need financial help the most,” Bray said.
“We are so pleased that CTG’s persistence in its discussions with HMRC have achieved such a positive result”.
The CTG said it has long argued that the VAT legislation in this area is no longer fit for purpose, and recommends that charities seek advice from their professional VAT advisers on what the next steps are for them.
Andrea Marshall, a tax specialist at British Universities Finance Directors Group (BUFDG) added: “This is a big step forward which provides clarity on the VAT treatment of an increasingly important communication channel and will undoubtedly help charities to achieve more in these straitened times.
“This has been achieved through the Charity Tax Group’s patient and collaborative approach to resolving this matter with HMRC”.