HMRC extend the scope of zero rate advertising by charities

HMRC’s historic policy was that most digital advertising is subject to VAT. HMRC has recently issued assessments to advertising agencies to charge standard rated VAT. The agencies often passed this retrospective VAT charge onto charities, who have been unable to recover it fully as input tax due to their non-business activities or VAT exempt sales.

For more than two years, the Charity Tax Group (CTG) have been challenging HMRC’s policy. The CTG was established to make representations to the UK Government on charity taxation and is a member of the HMRC Charity Tax Forum. A letter received by CTG in July 2020 from HMRC extends the scope of zero rate to five types of advertising but still leaves two areas that HMRC argue are outside the zero rate provision.

The five areas of digital advertising that can be zero rated are;

• Retargeting, where the user is tracked via cookies;
• Behavioural targeting, where users are identified by previous interest in the subject and the advert reaches them as they browse elsewhere on the internet;
• Demographic targeting, where the date of birth provided at the time the user first registers with an email provider is used together with their browsing history;
• Audience targeting,  uses multiple data sources including behavioural and targeting methods as above but also third party data such as frequent credit card users;
• Lookalike targeting, similar to audience targeting.

All advertising sent to a social media address (an email to an individual’s account) that is a ‘personal account’, or where the recipient has paid a subscription for the site, continues to be treated by HMRC as standard rated for VAT purposes as it is sent to an individual rather than a group of people.  Advertising using location targeting is also still considered as VAT standard rated.