Charities win zero rate digital advertising

HMRC has changed its guidance on the VAT treatment of supplies of digital advertising to charities following extensive discussions led by the Charity Tax Group.

There is a zero-rate of VAT for certain supplies of advertising media to charities, but HMRC had previously considered that this did not apply to most digital advertising on the basis that it was targeted towards specific individuals.

This approach has now been reviewed and HMRC has announced that a range of digital advertising services will now be eligible for the zero rate of VAT when supplied to charities.

These services include: 

• the use of third party data to identify a target audience, 
• using cookies to identify people who have visited websites or made relevant searches,
• using location information to target advertising,
• pay per click adverts where a search engine receives a fee whenever the charity website is accessed through a sponsored link.

Some services will remain standard-rated for VAT when supplied to charities:

• adverts to be sent to specific individual email addresses,
• the listing of a charity in the results of a search engine – HMRC do not consider this to be advertising,
• social media or subscription website accounts, where adverts are sent to individuals who have signed in to their accounts.

Design and production services for qualifying adverts are also eligible for zero-rating, but services relating to search engine optimisation do not qualify as work on a charity’s own website is specifically excluded from the zero-rate.

Businesses which have overcharged VAT to charities in the last 4 years can now make claims for repayment, and charities which have incurred VAT wrongly charged should contact the relevant suppliers.

Further detail about the charity tax group can be found at www.charitytaxgroup.org.uk