HMRC’s challenge to zero-rating for advertising could cost charities

The supply of advertising to a charity is zero-rated with regards to VAT. This means charities are entitled to claim zero-rating when they acquire advertising space in newspapers, magazines, television, the radio and third party websites. However, HMRC has recently challenged zero-rating in situations where adverts have been placed on online platforms, especially via social media. 
HMRC’s view is that where any selection takes place and an advert is not broadcast on a general basis, zero-rating cannot apply. The basis for this is VAT Act 1994, which states:
“Neither of items 8 and 8A includes a supply where any of the members of the public (whether individuals or other persons) who are reached through the medium are selected by or on behalf of the charity. For this purpose “selected” includes selected by address (whether postal address or telephone number, e-mail address or other address for electronic communications purposes) or at random.”
Therefore, when an advert is specifically addressed or aimed at an individual, HMRC’s view is that zero-rating does not apply. This applies in instances of digital marketing when digital tools are used to select a recipient (e.g. by search history or other options) so the advert only goes to a specific ‘address’.
Charities increasingly use social media and digital marketing to attract new supporters, so HMRC’s stance could have an impact not just on the VAT suffered, but may also result in a decrease in overall donations if the digital market is neglected. This seems to be another incidence of the VAT legislation not keeping up with technological developments with unintended consequences.
If you have experienced an issue with zero-rating at your charity or a challenge from HMRC, please get in touch with our specialist VAT team.

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