HMRC has recently confirmed when 0% VAT can apply to digital advertising for charities, and when the 20% standard rate should apply.

Revenue & Customs Brief 13/20 confirms the VAT rate that should apply to digital advertising for charities. This expenditure will be subject to 20% standard rate VAT, unless the conditions are satisfied to permit zero-rating.

In effect zero-rating means a charity pays 0% VAT which is hugely beneficial for charities given the significant VAT recovery restrictions that typically apply to third sector organisations.

The published brief details the different types of advertising that can be zero-rated subject to meeting all of the pertinent conditions. Otherwise 20% standard rate VAT will apply. We strongly recommend charities consider the information in HMRC’s Brief and how it impacts on their digital advertising activities.

The following types of advertising have been confirmed as zero-rated:

Audience targeting - The use of demographic, behavioural and other third-party data to identify a target audience and placing advertisements related to that data as they browse elsewhere.

Behavioural targeting - Using cookies to identify people who have visited websites or made searches related to particular areas of interest and placing advertisements for related goods and services which are displayed as they browse elsewhere.

Channel targeting - The selection of a specific section of a website on which to place advertisements.

Content targeting - Selection of specific content for advertisements to appear alongside.

Daypart targeting - Advertisers choose to target only specific times of day or specific days of the week, without any decisions involving recipients. This is because their advertisements are more relevant to those periods.

Demographic targeting - Use of data from a number of sources, including logged in and behavioural data, to identify target audiences. The advertisements will be related to that data as they browse elsewhere.

Device targeting - Advertisers choose to reach only certain types of device.

Direct placements on third party websites - Placing an advertisement on a website without any decisions involving recipients. The choice of website is the main consideration.

Location targeting - This is similar to behavioural targeting. When individuals opt in to provide location data, this information is collected and combined into large datasets to target audiences who have visited particular areas. Advertisements relating to that data are then displayed as they browse elsewhere. No personal data or survey results are collected.

Lookalike targeting - Using cookies to identify potential new customers by looking at common traits and behaviours of existing customers.

Pay-per-click adverts - Used to encourage people browsing to click on an organisation’s link in precedence to other links shown. The search engine receives a fee every time the organisation’s website is accessed through the sponsored link.

Retargeting - Use of cookies to track users and find them again when they browse the internet.

HMRC have advised suppliers that they can submit a claim for VAT they have over charged on such supplies in the last 4 years. Charities that identify instances where they have over paid VAT should contact their supplier and request a refund. This should not cost the supplier as they will be reimbursed via a VAT error correction claim they submit to HMRC.

If a charity receives a refund from their supplier, they should ensure that the VAT originally charged was not claimed from HMRC to any degree in their VAT recovery calculations. Such historic VAT should be taken into account and adjustments may be required.

Contact us

Please don't hesitate to get in touch with me, or one of our VAT specialists, if you would like to discuss HMRC’s updated VAT position on digital advertising.