Policy paper

Revenue and Customs Brief 13 (2020): VAT charity digital advertising relief

Published 8 September 2020

1. Purpose of this brief

This brief sets out HMRC’s policy in different digital advertising situations. It also explains what advertisers and their customers may need to do.

2. Who needs to read this

This brief applies to:

• any body providing advertising services to charities
• the charities receiving such services
• representatives of the charities

3. Background

Zero rate VAT applies for advertising services supplied by a third party to a charity when the services are designed for the general public. The advertisements can be by any method. The zero rate is explained in detail in VAT Notice 701/58: goods or services supplied to charities.

However, advertising services are excluded from the zero rate if a member of the public has been selected by or on behalf of the charity to receive the advertising. In these circumstances ‘selected’ includes any method of contact, including electronic communications.

It has always been accepted that advertisements supplied by digital methods have the potential to fall within the zero rate. Revenue & Customs Brief 25/10 explains HMRC’s policy of pay-per-click charity advertising on sponsored links, including the treatment of ‘natural hits’ and direct placements on third party websites. However, digital advertising services include a level of selection that can make it difficult to determine if the zero rate can apply.

HMRC has reviewed a range of digital advertising situations. This brief sets out the policy for those and reiterates the treatment previously stated in Revenue & Customs Brief 25/10.

4. HMRC’s policy

The VAT treatment of advertisements can vary. Online advertising services are complex and constantly changing, but they are aimed at general audiences rather than at individuals. On that basis, HMRC has accepted that some, though not all, of the situations we have seen are eligible for the zero rate.

The information below gives details of items eligible for the zero rate and those that remain standard rated.

4.1 Zero rated subject to all other conditions being met

Audience targeting

The use of demographic, behavioural and other third-party data to identify a target audience and placing advertisements related to that data as they browse elsewhere.

Behavioural targeting

Using cookies to identify people who have visited websites or made searches related to particular areas of interest and placing advertisements for related goods and services which are displayed as they browse elsewhere.

Channel targeting

The selection of a specific section of a website on which to place advertisements.

Content targeting

Selection of specific content for advertisements to appear alongside.

Daypart targeting

Advertisers choose to target only specific times of day or specific days of the week, without any decisions involving recipients. This is because their advertisements are more relevant to those periods.

Demographic targeting

Use of data from a number of sources, including logged in and behavioural data, to identify target audiences. The advertisements will be related to that data as they browse elsewhere.

Device targeting

Advertisers choose to reach only certain types of device.

Direct placements on third party websites

Placing an advertisement on a website without any decisions involving recipients. The choice of website is the main consideration.

Location targeting

This is similar to behavioural targeting. When individuals opt in to provide location data, this information is collected and combined into large datasets to target audiences who have visited particular areas. Advertisements relating to that data are then displayed as they browse elsewhere. No personal data or survey results are collected.

Lookalike targeting

Using cookies to identify potential new customers by looking at common traits and behaviours of existing customers.

Pay-per-click adverts

Used to encourage people browsing to click on an organisation’s link in precedence to other links shown. The search engine receives a fee every time the organisation’s website is accessed through the sponsored link.

Retargeting

Use of cookies to track users and find them again when they browse the internet.

4.2 Standard rated

Email advertisements

Advertisements sent to email addresses are targeted at the individual recipient and are therefore excluded from zero rating.

Natural hits

The listing of a charity in the results of a search engine. This happens automatically regardless of any action taken by or on behalf of the charity and just highlights text from the charity’s own website. Such results are not considered advertisements for VAT relief.

Social media/subscription website accounts

When individuals log in to their personal pages, sites use tools to apply advertisements to them when they are signed in. The content will be related to the individual’s known likes, dislikes, interests or location, as a signed in member of the website.

HMRC will continue to engage with external stakeholders to ensure we understand the VAT treatment of changing advertising practices.

5. Design and production of advertisements

Generally, as long as the advertisement being published qualifies for the zero rate, the copyright, design and production services will also qualify. VAT Notice 701/58: goods or services supplied to charities gives more details.

However, services supplied by copywriters and designers for the purpose of search engine optimisation, structuring a website so that it contains as many keywords as possible, do not qualify for the zero rate. These services involve the optimisation of a charity’s own website and are specifically excluded from the relief.

6. Making claims or adjustments

VAT Notice 700/45: how to correct VAT errors and make adjustments or claims gives information on how to make adjustments.

Businesses that have accounted for and paid VAT on supplies of charity advertisements that are now considered to be zero rated can submit claims for overpaid tax.

All claims will be subject to the 4 year time limit in section 80(4) of the Value Added Tax Act 1994. They can also be considered for unjust enrichment.

7. More information

Amendments will be made to HMRC’s guidance in VAT Notice 701/58: goods or services supplied to charities and the VAT Charities guidance manual to reflect this information.

If you are in any doubt about the correct treatment of your charity advertising, please contact the Charities Helpline, Telephone: 0300 123 1073.