We look at why a recent decision by HMRC to cut VAT for digital advertising is “good news for charities”
HMRC confirmed last month that it is set to alter the way digital advertising is taxed. Many forms of online advertising will now be exempt from VAT and receive a zero rate charge.
The move follows a long campaign by sector body the Charity Tax Group (CTG) and is set to see the cost charities incur when they advertise online slashed.
The savings will come as the cost of digital advertising related VAT was being met by advertising agencies, who were then passing this on to their clients including charities.
The move is “good news for charities” according to CTG vice chairman Richard Bray.
“It will result in significant VAT savings on the cost of many forms of digital advertising at a time when they need financial help the most. We are so pleased that CTG’s persistence in its discussions with HMRC have achieved such a positive result”.
- Richard Bray - Vice Chairman, CTG
Andrea Marshall, a tax expert with the British Universities Finance Directors Group (BUFDG) is also backing the removal of VAT for areas of digital advertising.
“This is a big step forward which provides clarity on the VAT treatment of an increasingly important communication channel and will undoubtedly help charities to achieve more in these straitened times.”
- Andrea Marshall - BUFDG
The move had been hinted at by HMRC in July before it was eventually confirmed in September with the release of Revenue and Customs Brief 13 (2020): VAT charity digital advertising relief.
“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.”
HMRC has also confirmed that the exemption applies to charities, representatives of charities and “any body providing advertising services to charities”.
- Excerpt from HMRC Brief
Most, but not all forms, of digital advertising will receive a zero VAT rating. HMRC’s briefing document details the different forms of digital advertising that will now be exempt. These are:
Audience targeting - This is where advertisers use demographic, behavioural and other third-party data to identify an audience and place advertisements online to target them.
Channel targeting – This is where specific sections of a website are targeted by advertisers.
Content targeting – This defines a selection of specific online content for adverts to appear alongside.
Daypart targeting - Advertisers choose to target only specific times of day or specific days of the week in this form of targeting. This is because sometimes there advertising is relevant to those times of the day or certain days, such as awareness days.
Demographic targeting - This form of targeting uses data from a number of sources, including behavioural data to identify target audiences. Advertising will be related to that data as they browse elsewhere.
Device targeting - When advertisers want to reach only certain types of devices, such as smart phones, tablets, desktops or voice activated devices.
Direct placements on third party websites - Placing an advertisement on a website without any other targeting. The choice of website is the main consideration here.
Location 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 online.
Lookalike targeting – Cookies are used to identify new supporters by looking at common traits and behaviours of current donors.
Pay-per-click adverts –This is used to encourage people browsing to click on an organisation’s link over others. The search engine receives a fee every time the organisation’s website is accessed through the link.
Retargeting – This tracks users through cookies to find them again when they browse the internet.
But while the exemption will save charities money to promote themselves online there are three forms of digital advertising that will still have a VAT rating. These are:
CTG’s Bray says that this clarification by the HMRC of which forms of online advertising are covered is also welcome.
“The classifications of services,” he says “will be much easier to apply than appeared the case before the brief was issued”.