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HMRC clarifies zero VAT rating of digital ads for charities

8 September: HMRC’s latest guidance sets out its VAT relief policy for a variety of digital advertising scenarios for charities.

HMRC has issued Revenue and Customs Brief 13 (2020) to explain its view on when zero-rate VAT applies for advertising services supplied by a third party to a charity.

The zero rate applies when the services are designed for the general public, which is explained in detail in VAT Notice 701/58: goods or services supplied to charities.

However, advertising services are excluded from the zero rate if a member of the public has been selected by or on behalf of the charity to receive the advertising, including electronic communications. Digital advertising services include a level of selection that can make it difficult to determine if the zero rate can apply.

HMRC has accepted that some forms of digital advertising services are eligible for the zero rate – particularly where they are aimed at general audiences rather than at individuals. The information below gives details of items eligible for the zero rate and those that remain standard rated.

Zero rated, subject to all other conditions being met:

  • audience targeting,
  • behavioural targeting,
  • channel targeting,
  • content targeting,
  • daypart targeting,
  • demographic targeting,
  • device targeting,
  • direct placements on third party websites,
  • location targeting,
  • lookalike targeting,
  • pay-per-click adverts, and
  • retargeting.

Standard rated:

  • email advertisements,
  • natural hits, and
  • social media/subscription website accounts.

If the advertisement being published qualifies for the zero rate, the copyright, design and production services will usually also qualify. VAT Notice 701/58: goods or services supplied to charities provides more details.

Services supplied by copywriters and designers for the purpose of search engine optimisation, structuring a website so that it contains as many keywords as possible, do not qualify for the zero rate. These services involve the optimisation of a charity’s own website and are specifically excluded from the relief.

Businesses that have accounted for and paid VAT on supplies of charity advertisements that are now considered to be zero rated can submit claims for overpaid tax, subject to the normal rules.