Sarah Halsted

Written by: Sarah Halsted

Sarah Halsted

Technical Associate Director

VAT relief on charity advertising arrives in the digital age

Following recent representation by the Charity Tax Group (CTG), HMRC has announced an update to its policy on the VAT treatment of online charity advertising. 

Usually charity advertising is zero-rated for VAT purposes. However, marketing and advertising material targeted towards individuals or groups has always been excluded from this relief; for example, emailing named individuals. Where advertising is ‘targeted’ then suppliers are required to charge charities at the standard rate of VAT. Alternatively, if the supplier is based outside the UK, the charity must self-charge VAT under the reverse charge mechanism.                                                                                                                                                                                                                               

In recent times, the developing area of social media marketing has caused conflict between charities and HMRC, with HMRC arguing that many social media campaigns are ‘targeted’ in the context of the legislative exclusion. This is on the basis the social media adverts can be directed to individuals or groups based their digital footprint (for example via cookies).

As a direct result of the CTG’s intervention, HMRC consulted with the Department for Digital, Culture, Media and Sport to understand the marketplace and terminology used in more detail and has now revised its position for charity social media campaigns.  

The zero-rate relief for charity advertising remains a complex area of VAT and charities should always carefully consider the impact of HMRC’s new policy on their individual arrangements. But, broadly speaking, HMRC now takes the view that the digital advertising by charities can qualify for VAT relief where the advertising process targets aggregated audiences rather than individuals. Examples of this include using cookies to identify groups of users using demographic or behavioural data.

However, HMRC says that charity advertising that is selected for delivery on a location, geographic or regional basis does not qualify for VAT relief. Nor does advertising that is sent to a social media address that is a ‘personal account’ or where the recipient has paid a subscription for the site: HMRC regards this as having been delivered to an individual, so VAT applies.  

As a result of HMRC’s previous position, many charities have either been charged VAT on advertising by suppliers or applied the reverse charge to services received from outside the UK. Charities with costs in this area should revisit their past VAT accounting and consider if they may be entitled to a rebate as a result of the new position.

Social and digital media advertising remains an evolving landscape. HMRC has committed to keeping abreast of the issue and the not-for-profit sector may still request a widening of the legislation to remove ambiguity.  

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