New policy on pay-per-click charity ads

HMRC have revised their policy on the VAT treatment of pay-per-click charity advertising on sponsored links and other associated services.

Pay-per-click ads are used on search engines to encourage users to click on an organisation’s link in priority over other links on a results page. The organisation pays the search engine provider an agreed amount each time its website is visited through the sponsored link.

Supplies of advertisements for charities, when placed on a third party’s website are zero rated under VATA 1994, sch 8 group 15 items 8 and 8A to 8C, as are the ads’ design and production costs.

Until now, the Revenue had taken the view that these links are not advertisements, but rather means of accessing charities’ websites. As such, they were excluded from zero rating by sch 8 group 15 note 10B, which excludes zero rating on the costs of providing a charity’s website.

Following representations from charities that zero rating should apply to pay-per-click charity advertisements, HMRC have revised their policy and now accept that pay-per-click sponsored links appearing on search engines are ads for the purpose of items 8 and 8A, and qualify for zero rating when supplied to a charity. It follows that the supply of copyright and design services associated with such sponsored links fall within zero rating.

However, the taxman says services supplied by copywriters and designers for the purpose of search engine optimisation do not qualify for relief, and so are specifically excluded from item 8.

Businesses that have accounted for, and paid, VAT on supplies of charity advertisements that are now considered to be zero rated may submit claims for overpaid tax, subject to the transitional four-year limitation period and unjust enrichment provisions.

See here for more details.

Issue: 4259 / Categories: News , VAT