HMRC Online Charity Advertising Policy Update Reflects Changing Digital Market

HMRC has updated its charity online advertising policy, so what does it mean for charities?

Dated: 10 August 2020 Author: Terri Bruce, Director of Indirect Tax for SMEs and Not for Profits

HMRC has updated its charity online advertising policy, to adapt to a complex and constantly changing digital market.

Charity advertising is zero-rated for VAT purposes but Marketing and Advertising material which targets individuals or groups has been excluded from the relief.

Any charities advertising online where specific information or promotional materials are sent to named individuals, often through subscription websites, have been required to pay the standard VAT rate.  Advertising on social media is frequently supplied by businesses based outside of the UK but charities receiving the supply are required to account for VAT by way of the reverse charge mechanism.

This has resulted in a VAT cost for many charities which are unable to recover VAT on expenditure.

In response to lobbying by charities and representative groups such as the Charity Tax Group, HMRC has looked closely at social media and other areas of digital advertising and appears to have agreed that charities can qualify for VAT relief where the advertising process targets aggregated audiences rather than individuals.

Areas of digital advertising they have reviewed include location targeting retargeting, behavioural targeting, demographic targeting, audience targeting and lookalike targeting.

After consulting with the Department for Digital, Culture, Media and Sport (DCMS), HMRC also agreed that there should be no ‘one size fits all approach’ to digital advertising and that many charities channel their advertising to aggregate audiences and not towards individuals.

HMRC still maintains its position on advertisements sent to individual social media and subscription website accounts and will continue to be liable to VAT at the standard VAT rate.

However, they have changed their stance around other areas of digital advertising, deeming them to target groups rather than specific individuals.

Digital Advertising now eligible for zero-rated VAT includes:

  • Retargeting – where the user is tracked via cookies and those cookies can be used to track them again as they browse the internet. No personally identified information is used
  • Behavioural targeting – where cookies are used to identify users who have displayed an interest in a specific area on the internet
  • Demographic targeting – where data is taken from a number of sources including when a user signs up to an email provider
  • Audience targeting – where demographic and behavioural data is used
  • Lookalike targeting – where advertisers use cookies to identify potential new customers by looking at common traits and behaviours

Digital Advertising charged at the standard VAT rate:

  • Location targeting – where users are targeted based on where they are or where they have been which can be done via an IP address and targets individuals directly

Terri Bruce, Dains’ Indirect Tax Director for SMEs and Not for Profit, said: “Digital media advertising remains a fast moving and constantly evolving landscape but hopefully this update will give charities greater clarity around VAT charges in areas of digital advertising that were previously ‘grey areas.’

“HMRC have vowed to continually engage with the DCMS to gain a better understanding of the advertising sector and to make sure that online advertising VAT charges align with other VAT legislation.”

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