HM Revenue & Customs (HMRC) has recently issued new guidance on VAT and digital advertising by charities, which will see many charitable organisations stand to benefit from the expansion of the Zero-rated VAT policy.

Previously, HMRC was clear that the majority of digital advertising should be subject to VAT; however, this often meant that those third parties and agencies providing the services passed costs on to the charity, amounting to substantial irretrievable sums.

Among others, the Charity Tax Group (CTG) has endlessly argued the inadequacy of such an approach and in particular that the policy, in its earlier form, was difficult to apply correctly.

The Revenue and Customs Brief 13 (2020): VAT charity digital advertising relief confirms that a Zero-rate of VAT applies to advertising services produced for an audience wide enough to be deemed the ‘general public’, including but not limited to behavioural targeting; content targeting; direct placements on third party websites, and pay-per-click adverts.

A clear distinction between ‘selected’ recipients using personal accounts online, and the wider general public utilising a shared site or platform, does undoubtedly make the rules easier to employ.

Advertisements targeted at selected recipients will attract a standard rate of VAT, including email advertisements and social media subscription accounts. Other services purchased via third parties, such as website optimisation, will also be excluded from Zero-rated VAT.

Despite the guidance now being less ambiguous, there are still many inimitable scenarios and technicalities to consider; consequently, a certain level of caution should still be exercised when it comes to identifying activities within scope of the new policy.

Where a business has already accounted for and paid VAT on supplies of charity advertisements that are now considered to be zero rated, they can submit claims for overpaid tax, subject to a retrospective four-year time limit.

Associate Partner Samantha Green, comments: “This latest brief is a step forward and, during what has been a challenging year, should be considered good news.

“Anything that makes it easier for charities and trustees to understand and fulfil their tax liabilities is welcome; even more so when you consider that this particular policy has been crying out for reassessment for some time. I am grateful to CTG for their persistent campaigning.

“Charities who have recently, or otherwise regularly purchase digital advertising services from third parties and agencies should consider whether these fall within scope of the new rules and whether any tax has been overpaid.”

How can George Hay help?

Our experienced partners and accountancy professionals are familiar with the regulatory requirements affecting the Third Sector and we understand the unique challenges impacting upon not-for-profit organisations, including the need to operate as efficient, cost-effective businesses.

We can provide practical, proactive and considered tax planning advice, covering everything from Gift Aid to VAT efficient trading structures and we do so with the aim of helping you to find and enjoy financial stability, whilst also achieving your core charitable objectives.

To find out more about how we can support you, or to arrange a free initial consultation with our one of our professionals, contact us today.

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