Revenue and Customs Brief 13 (2020): 'VAT charity digital advertising relief', sets out HMRC's policy in different digital advertising situations. The guidance may contain some errors.
Advertising services supplied by a third party to a charity are zero-rated when the services are designed for the general public.
Advertising services are standard-rated 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.
The zero-rate is explained in detail in VAT Notice 701/58: 'Goods or services supplied to charities'.
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. 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.
HMRC lists the following as 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 the 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.
HMRC confirms the following is standard-rated
- Email advertisements: Advertisements sent to email addresses are targeted at the individual recipient and are therefore excluded from zero-rating.
The notice lists the following under standard-rated, which is odd:
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 login 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 says it will continue to engage with external stakeholders to ensure we understand the VAT treatment of changing advertising practices.
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.
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.
This is clearly a bit of a minefield. The paragraph on Social media does not seem to make any sense and it is unclear if HMRC think that this is standard-rated or what.