CTG: Notification of changes to HMRC’s policy relating to ‘digital advertising’

The Charity Tax Group has issued an alert on developments regarding the zero rating of on-line advertising and the latest correspondence from HMRC, that they have kindly agreed we can reproduce on the BUFDG website.

UPDATE: HMRC have issued Revenue and Customs Brief 13 (2020): VAT charity digital advertising relief

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Notification of changes to HMRC’s policy relating to ‘digital advertising’

 Charities and advisers will have been aware of HMRC’s emergent policy of taxing advertisements where digital selection of the recipient (or viewer) of the advert has occurred, and that this has blighted a considerable proportion of what had previously been zero rated charity advertising.  You will also have been aware that, for more than two years, the Charity Tax Group (CTG) has been conducting a dialogue with HMRC (alongside discussions with other bodies and sectors) to seek to persuade HMRC that this policy is incorrect.

 We have now received a further letter from HMRC arising from the dialogue, and which details changes in their earlier views on digital advertising.  That letter is attached to this email and also available online here.

 The letter requires careful reading and interpretation, before it can be applied to practical cases.  The letter is not entirely straightforward to understand, but charities and their advisers (as well as advertising suppliers and advisers) need to engage with the text of the letter to ascertain their position.  The following is a brief precis of what CTG believes the key aspects are, but this is intended as an Executive Summary, and not as advice or guidance.  That can only arise from the taking of professional advice.  CTG cannot give such advice, and so cannot enter into correspondence about the meaning of the letter.

 The following is in two sections.  An overview of what this means in tax terms, and some comments about what to do next.

 The Changes

 In overview terms, HMRC now accepts that internet search browsing gives rise to zero rated advertisements, except where the advertisement is selected for delivery on a location, geographic, or regional basis.  The letter discusses the general phrases for the categories that are now accepted as zero rated (where they were not accepted before).

 However, all advertising sent to a social media address that is a ‘personal account’, or where the recipient has paid a subscription for the site (thereby having a personal account) continues to be treated by HMRC as standard rated on the basis that there is delivery to an ‘individual’. 

 There is no apparent change to categories where previous HMRC correspondence confirmed them as zero rated.

 Next Steps

 Charities will want to contact their professional advisers to interpret the letter in the context of their own advertising procurement. 

 Where charities import the relevant services, this will then potentially impact on reverse charge liabilities on such imports.

 Charities will want to consider the VAT charging arrangements of UK based advertising suppliers such as agencies.  Agencies should be requested to zero rate the services that HMRC now accepts as being zero rated.

 Where agencies have invoiced extra VAT by reference to HMRC’s prior announcements, charities will want to consider asking agencies to reimburse VAT it is now apparent was incorrectly charged.  Charities will want to bear in mind that agencies will require time to discuss this with their own advisors, and potentially to contact HMRC.

 Agencies and charities (as regards reverse charges) may need to refer back to the HMRC officer that issued the assessments for VAT to seek a reduction in the assessments in line with the revised policy.  HMRC has told us that the revised policy is being disseminated in HMRC.  However, it would be unwise to assume that this will automatically cause HMRC to issue credit assessments (though they might decide to do so).

 As mentioned above, CTG cannot provide professional advice or interpretation advice.  Please refer to your professional advisers.

 CTG’s tireless work on this issue has produced this result.  If any recipient wishes to quote passages from the letter on their website or in general bulletins, please would you attribute the letter and its contents to CTG, and refer in all cases to it as communications between CTG and HMRC – a press release linking to the letter can be found here.

 We do not take the view that this is the end of the process, but the question of further actions by CTG has yet to be resolved, and we will keep in touch on that point as our view evolves.

Best wishes.

 Charity Tax Group