Charities and VAT – Zero rating of digital advertising

In early September, HMRC released a brief setting out the various types of digital advertising supplied to charities that HMRC consider to be eligible for zero rating.

Advertising services supplied by a third party to charities has always been zero rated where the advertising was designed for the general public, i.e. not if the member of the public had been selected by the charity to receive the advertising. Whilst digital advertising therefore always had the potential to fall into this, it was tough sometimes to prove that the selection criteria wasn’t applicable, particularly post GDPR.

HMRC have now clarified the point and provided specific examples where selection does not lead to the supply automatically being standard rated. This includes a selection of specific websites on which to place advertisements, targeting specific times of day or days of the week, behavioral or demographic targeting. They have also specified examples of standard-rated advertising, for example, email advertising and advertising on social media using tools to apply advertisements once users are logged in.

The guidance also confirms that if the advertisement qualifies for being zero-rated, then generally the copyright, design, and production services will also qualify (other than search engine optimisation).

The good news is that if you have received services in the past that were standard rated and are now zero-rated, you can apply to submit a claim to your supplier for overpaid tax on those invoices for the last 4 years.

This is an increasingly popular area of advertising for many charities, and it’s good to see that HMRC are trying to be progressive when they look to update guidance.