Changes to digital advertising VAT rates for charities

Following a campaign by the Charity Tax Group, HMRC have agreed to change their policy on VAT rates applicable to digital advertising.

Previously, HMRC stated that certain supplies of digital advertising did not fall into the zero rating relief available for charities because the supplies were targeted advertising. They have now reconsidered certain types of digital advertising and decided that they are in fact zero-rated. Charities should note, however, that some types of digital advertising remain standard rated.

The following types of digital advertising have now been re-classed as zero rated for charities:

  • Retargeting individuals revisiting a website
  • Behavioural targeting
  • Demographic targeting
  • Audience targeting
  • Location targeting
  • Lookalike targeting

See the tables below for the full list of digital advertising VAT rates.

Action to take

Charities should now review the VAT rate applied to advertising supplied to them over the last couple of years. Where the rate has changed, ask suppliers to issue credit notes for advertising previously treated as standard rated which can now be zero rated. This could result in significant VAT savings for the organisation.

Where a charity buys services from outside the UK, it must account for VAT on the cost of those services if they are standard rated under a procedure known as reverse charge. Charities therefore should check the VAT rate applied to reverse charges on services purchased from outside the UK and make a reclaim of VAT if they have accounted for reverse charge VAT on services which HMRC now accept can be zero rated.

VAT rates for digital advertising

The tables below show the VAT rate previously advised by HMRC and the new revised VAT rate.

Advertising TypeDescriptionPreviously Advised VAT RateUpdated VAT Rate
Pay per Click advertsThese are advertisements and not involving selection on address.Zero rateZero rate
Natural HitsNot supplies of advertising.Standard rateStandard rate
Direct placements on third party websitesThese are advertisements and not involving selection on address.Zero rateZero rate
Social mediaAdvertising is specifically targeted at the individual.Standard rateStandard rate
Retargeting individuals revisiting a websiteThe IP address of the individual is recorded and advertising is presented based on the users prior searches.Standard rateZero rate

Other targeted advertising:

Channel targetingA particular section/page of a website used to advertise.Zero rateZero rate
Content targetingAdverts displayed alongside related content.Zero rateZero rate
Behavioural targetingSimilar to retargeting – adverts displayed based on prior websites visited based on IP address.Standard rateZero rate
Demographic targetingUsing sources of data on the targeted individual to base the advertisements on.Standard rateZero rate
Audience targetingSimilar use of information as demographic targeting but on a group of individuals. This will still be based on their IP addresses and direct contact.Standard rateZero rate
Location targetingIP addresses used to target individuals in a particular area.Standard rateZero rate
Lookalike targetingCookies used to identify potential new customers by reviewing current customers, advertiser then directly targets the potential new clients. Standard rateZero rate
Device targetingExample is an advertiser choosing certain devices to advertise to, not targeting specific individuals.Zero rateZero rate
Daypart targetingAdvertising at specific times of day or specific days of the week. Not a targeted selection of individuals.Zero rateZero rate

Further guidance on these VAT rates can be found on the Gov.uk website.

Find out more

If you would like further advice or guidance regarding how this will affect your organisation and what you should do, please contact a member of our specialist Charities team on 01903 234094.

A version of this blog originally appeared on the website of MHA member firm, MacIntyre Hudson.