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HMRC clarifies the VAT treatment of digital advertising

The Charity Tax Group (CTG) have published correspondence with HMRC in which HMRC has accepted that zero rating can apply to the majority of charity advertising in the form of internet search browsing advertisements.

The clarification has been provided following lengthy correspondence between the CTG and HMRC and discussions between HMRC and the Department for Digital, Culture, Media and Sport.

HMRC have confirmed that advertising social media accounts and subscription websites remain standard rated as in these circumstances a person has been individually targeted. The standard rate also still applies to location targeting in which advertising is via an IP address registered to a particular location or based on data collected from a mobile phone.

HMRC now, however, accept the zero rating of 5 other types of digital advertising which does not target a person, individually, but selects an aggregated audience based on collective data such as interests, age, behaviours etc.

The 5 types are described as follows:

  1. Retargeting – where the user is tracked via cookies and the cookies are used to find them when they browse the internet again;
  2. Behavioural targeting – where cookies are used to identify users who have displayed an interest in a certain area and reaches them as they browse elsewhere on the internet;
  3. Demographic targeting – where data is used from a combination of logged in data eg information provided when setting up an email, and behavioural data eg what users are reading online;
  4. Audience targeting – where demographic and behavioural data is used alongside third party data eg frequent credit card users;
  5. Lookalike targeting – where potential new customers are identified by looking at the common traits and behaviours of existing customers.

Charities are advised to review the VAT liability of the advertising services they receive to ensure they are not being charged VAT incorrectly on digital advertising.

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