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VAT and digital advertising

One of the few VAT reliefs available to charities is on advertising. Charities are able to ask their advertising suppliers to invoice them with VAT at the zero-rate rather than the standard rate. However, targeted advertising (e.g. direct mail) does not fall within HMRC’s definition of advertising. HMRC has also recently decided that adverts placed on social media platforms (e.g. Facebook and Instagram) do not qualify for the relief as they are targeted based on the individual’s browsing history. Charity Tax Group has spoken to HMRC about this, arguing that HMRC is not interpreting the legislation as it was intended. HMRC has so far refused to budge on their position. HMRC set their position out as follows:
We have identified four scenarios where advertising takes place online. We consider the VAT treatment to be as follows.
• ‘Natural hits’ – not supplies of advertising for the purposes of item 8 – standard rated
• Pay-per-click adverts – zero rated
• Direct placements on third party websites – zero rated
• Social media adverts – standard rated

HMRC say they cannot give any detail on what falls into each category. Being unable to claim the VAT relief on social media advertising will result in a significant increase in irrecoverable VAT for charities, and Charity Tax Group is continuing to campaign on this issue.