When does a charity have to pay VAT on advertising?

Read more about VAT in our updated blog here – Is my printing subject to VAT?

MAXX met with Chartered Tax Adviser Terry Dockley at one of their regular networking events this week. He had some interesting things to say about VAT exemptions for Charities in relation to work we might be doing for them. We though this was too useful to keep to ourselves so read on to find out more…   Charities often need to advertise; in many cases they cannot pursue their objects without doing so. There are many instances where the supply of advertising to a charity may be zero-rated. However, many charities find the rules confusing, not least because the rules have changed with great regularity. So where do the rules stand now? When must VAT be charged and when can zero-rating apply? What can be zero-rated? The following supplies to charities can be zero-rated:

Advertising services.

Design and production services, and closely related goods, where these relate to the supply of an advertisement qualifying for zero-rating.

The advertising can be for any of the charity’s purposes including staff recruitment. But there must be a supply of advertising to the public in somebody else’s time or space.

What does this include?

– Television and radio

– Cinema.

– Billboards.

– Sides of vehicles. Newspapers and magazines.

– Websites other than the charity’s own website.

– Pay per click (“PPC”)-sponsored links on search engine websites.

Examples of design and production costs include the following where the intention is to include the end product in a third party’s advertising time or space:

The cost of designing a poster.

The filming or recording of an advert to be broadcast.

The cost of photos, pictures, videos or soundtracks.

What cannot be zero-rated?

Any advertising where selected groups of people are targeted rather than the general public.

Any advertising through a charity’s own time or space.

So what is excluded?

– Direct mail.

– Telesales.

– Advertising on a charity’s own greetings cards.

– Exhibition stands or space.

– Distribution services.

– Commemorative items such as pens and adult clothing.

– Equipment or raw materials used to create a charity’s own advertisements.

– The design of a charity’s own website.

– The services of copywriters and designers for search engine optimisation (“SEO”) purposes, as these are designed to increase hits on a charity’s own website.

More than one way to skin a cat?

If a supply falls outside one of these reliefs, then it is always worth thinking about some of the other types of zero-rating. For example, the zero-rating available for books and other printed matter.

“Imported” services

Finally, watch out for services bought from suppliers outside the UK. For example, if a VAT-registered charity buys SEO services from an Irish company, it will have to account for VAT on a reverse charge basis; it may not be able to recover all the reverse charge VAT as input tax. The purchase of such services by a non- VAT-registered charity would only count towards the registration threshold if bought for business purposes. To discuss how this may affect your clients or your business, or to talk about a VAT issue in general – contact: Terry Dockley & Co T: 07787 576783 E: [email protected] www.terrydockley.co.uk