HMRC issues important Brief on VAT and digital advertising by charities confirming that location targeting services can be zero rated

HMRC has previously ruled that most digital advertising should be subject to VAT. HMRC had raised assessments to recover VAT from some advertising agencies. These costs were generally being passed on to charities and amount to millions of pounds of irrecoverable VAT. For approximately three years, the Charity Tax Group (CTG) has been engaging with HMRC on this point. This persistent interaction eventually resulted in a letter from HMRC to CTG, in July 2020, confirming that VAT was no longer considered due on internet search browsing advertisements, except where they appear on personal social media accounts.

HMRC has now issued Revenue & Customs Brief 13 (2020): VAT charity digital advertising relief to confirm the views expressed in their letter to CTG dated 20 July 2020. However, there is one improvement over the letter, and the Brief supersedes it.

The change is that HMRC now accepts that ‘Location Targeting’ is also within the zero rate.  As per the original letter, categories described as ‘social media’ and ‘subscription website’ advertising are regarded by HMRC as standard rated for VAT purposes.  But all other forms of digital advertising are zero rated.  The exact forms are described in the Brief, and the above is a basic summary.

The change to inclusion of ‘Location Targeting’ in the zero rate followed further discussion between CTG and HMRC.  CTG welcomes HMRC’s change of heart on this aspect.  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.

Whilst CTG continues to disagree with HMRC’s policy as regards social media and subscription website advertising, we nonetheless welcome HMRC’s willingness to consider all the issues and its decision to change its view on a wide swathe of the advertising it formerly viewed as standard rated.  CTG continues to consider the position relating to interpretation of current law and opportunities to change the legislation to better reflect the original intentions behind the relief.

The Brief contains HMRC’s guidance concerning correcting over-payments of VAT arising from its previous policy.

CTG Vice Chairman, Richard Bray, commented:

“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.”

Notes to editors

The Charity Tax Group (CTG) has over 800 members of all sizes representing all types of charitable activity. It was set up in 1982 to make representations to Government on charity taxation and it has since become the leading voice for the sector on this issue. CTG is an active participant in HMRC’s Charity Tax Forum and sits as the charity representative on HMRC’s Joint VAT Consultative Committee (JVCC).

Charities will want to contact their professional advisers to interpret the Brief in the context of their own advertising procurement and contact their advertising agencies where appropriate. CTG is not able to comment on specific arrangements or the meaning of the letters for individual charities.

CTG has committed extensive resources to achieve this positive outcome for charities. When advisers update their charity clients on the publication of the Brief, we should be grateful if the important role of CTG in negotiations with HMRC is recognised.

For more information or additional press comment, please contact the CTG Secretariat at [email protected] or 02072221265.