VAT and Digital Media

The VAT treatment of advertising expenditure is an area where charities receive special treatment as unlike commercial entities the supply of advertising to a charity is zero-rated, which given that many charities are not registered for VAT themselves and therefore unable to recover input tax, can result in a significant cost saving.

The means by which charities conduct their advertising is a rapidly changing one, with increasing use of digital media in recent years to reach new audiences and expand a charity’s message. This rapidly developing area has left HMRC trailing a little and has created some uncertainty whether this form of advertising was eligible for the VAT exemption. Following a campaign by the Charity Tax Group, in August HMRC clarified its policy relating to the zero rating for charity advertising that is delivered through digital media in a letter to them, and further clarification was provided in September with publication of Revenue & Customs Brief 13 (2020), which confirmed that the following forms of digital advertising can be zero-rated when supplied to a charity:

• audience targeting
• behavioural targeting
• channel targeting
• content targeting
• daypart targeting
• demographic targeting
• device targeting
• direct placements on third party websites
• location targeting
• lookalike targeting
• pay-per-click adverts
• retargeting

Not all digital advertising supplied to a charity is zero-rated though. Advertising services are excluded from the zero rate if a member of a public has been selected by or on behalf of the charity to receive the advertising. This will include email advertisements and those posted on social media/subscription website accounts based upon the user’s known likes, interests or location.

Guidance: https://bit.ly/2HKlyAt