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 Type||Description||Previously Advised VAT Rate||Updated VAT Rate|
|Pay per Click adverts||These are advertisements and not involving selection on address.||Zero rate||Zero rate|
|Natural Hits||Not supplies of advertising.||Standard rate||Standard rate|
|Direct placements on third party websites||These are advertisements and not involving selection on address.||Zero rate||Zero rate|
|Social media||Advertising is specifically targeted at the individual.||Standard rate||Standard rate|
|Retargeting individuals revisiting a website||The IP address of the individual is recorded and advertising is presented based on the users prior searches.||Standard rate||Zero rate|
Other targeted advertising:
|Channel targeting||A particular section/page of a website used to advertise.||Zero rate||Zero rate|
|Content targeting||Adverts displayed alongside related content.||Zero rate||Zero rate|
|Behavioural targeting||Similar to retargeting – adverts displayed based on prior websites visited based on IP address.||Standard rate||Zero rate|
|Demographic targeting||Using sources of data on the targeted individual to base the advertisements on.||Standard rate||Zero rate|
|Audience targeting||Similar 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 rate||Zero rate|
|Location targeting||IP addresses used to target individuals in a particular area.||Standard rate||Zero rate|
|Lookalike targeting||Cookies used to identify potential new customers by reviewing current customers, advertiser then directly targets the potential new clients.||Standard rate||Zero rate|
|Device targeting||Example is an advertiser choosing certain devices to advertise to, not targeting specific individuals.||Zero rate||Zero rate|
|Daypart targeting||Advertising at specific times of day or specific days of the week. Not a targeted selection of individuals.||Zero rate||Zero rate|
Further guidance on these VAT rates can be found on the Gov.uk website.