HMRC updates policy on zero-rating for charity advertising to reflect changing digital market
HMRC has updated its charity online advertising policy, to adapt to a complex and constantly changing digital market.
Dated: 10 September 2020 Author: Terri Bruce, Director of Indirect Tax for SMEs and Not for Profits
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. HMRC’s policy resulted in millions of pounds of irrecoverable VAT for charities.
The Charity Tax group (“CTG”) persistently lobbied HMRC on behalf of its members and HMRC eventually changed its policies as a result.
HMRC has now issued Revenue & Customs Brief 13 (2020): VAT charity digital advertising relief
Areas of digital advertising they have reviewed include location targeting retargeting, behavioural targeting, demographic targeting, audience targeting and lookalike targeting.
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:
- 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 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 several 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 like 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.
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.’
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