Advertising vs Marketing

An update for charities

Nic Robson, Senior Manager, VAT, Customs and International Trade

The issue

Charities are allowed to acquire advertising services from suppliers with the zero-rate of VAT, but one condition for the relief to apply is that the advertising is made to the general public.

After consultation with the charity and advertising sector, HMRC released its Revenue and Customs Brief 13 in September 2020. The brief indicated that some digital advertising supplied to the public by suppliers like Google could be treated as zero-rated, e.g., audience and location targeting, and Pay-Per-Click ads. However, the notice goes on to state that the standard rate of VAT applies to social media accounts because "when individuals log in to their personal pages, sites use tools to apply advertisements to them when they are signed in. The content will be related to the individual’s known likes, dislikes, interests or location, as a signed-in member of the website."

We have several charity clients affected by this, as they use platforms like Facebook for a number of fundraising campaigns. As most social media platforms are based outside the UK, it is up to the UK-based charity to account for any VAT due, which is often, to a large extent, irrecoverable.

The reverse charge also counts towards the UK VAT registration threshold, and so social media advert costs by themselves could result in a UK VAT registration for the Charity.

HMRC's position

HMRC has been provided with numerous examples of services and the applicable terms and conditions.

HMRC's response states that all supplies of Facebook and similar social media advertising fall outside zero-rated advertising, since users must be logged in before they see any content Consequently, 20% VAT must be accounted for by charities on such supplies received from suppliers based outside the UK.

Next steps

HMRC's position has not changed since the initial brief was released in September 2020, and unless it is successfully challenged, reverse charge VAT should be applied to services received from suppliers such as Facebook, Instagram, TikTok, etc.

If VAT has not been applied to these services, HMRC should be notified of the amount of tax due so that any penalties applicable can be mitigated.

Please get in touch with your usual VAT contact if you would like to discuss this further.