Charities, advertising and VAT

Schedule 8 of the VAT Act 1994 allows charities to benefit from the zero rate of VAT when purchasing a range of advertising services.

The relief covers all types of advertisement and does not need to include the name or logo of the charity.

Typical advertising services that are eligible for zero rating include billboards, television and radio and newspapers.

Exclusions to the zero rating relief

To be eligible for zero-rating, the charity’s advertisement must be made available to the general public via a qualifying third party medium.

Adverts provided to specific individuals in the form of delivery or post, adverts displayed on the charity’s own website and advertising services supplied to a trading subsidiary of a charity are specifically excluded from the VAT relief.

HMRC has taken a narrow interpretation of what ‘the public’ means which may result in increased costs for charities advertising online.

Advertising on third party platforms

HMRC has recently confirmed their view on advertising presented via digital platforms in response to  dialogue with the Charity Tax Group. HMRC interpret the VAT treatment as follows for these different situations where advertising takes place online:

• ‘Natural hits’ – not supplies of advertising for the purposes of item 8 and therefore standard rated
• Pay-per-click adverts – these are advertisements, do not involve selection of address so are zero rated
• Direct placements on third party websites – these are advertisements, do not involve selection of address so are zero rated
• Social media/subscription websites –these are advertisements which are targeted directly at a digital address so are standard rated
• Retargeting of individuals revisiting a website –these are advertisements retargeting a select IP address so are standard rated.

HMRC has written to some charities advertising on social media sites such as Facebook, LinkedIn and Twitter stating that they should be paying the standard rate of VAT for these services as such advertisements are often targeted at selected individuals and groups.

Do charities need to be VAT registered to benefit?

The zero rating relief is available to all charities, regardless of whether they are VAT registered or not. It may be necessary for the charity to make their advertising supplier aware of the relief in which case the charity may be due a VAT refund if the relief has gone unnoticed.

Can  “unregistered charities” and “not for profit” entities receive the zero rating even though they’re not charities?

In order to benefit from the VAT relief on advertising, unregistered charities may need to demonstrate that they have ‘charitable status’. This may be achieved from their written constitution or by obtaining recognition of their charitable status by HMRC.

The zero-rating relief is only available to charities and not other ‘not for profit’ entities. HMRC has provided guidelines on how to decide if your organisation qualifies as a charity.

What should charities do next?

• Charities should review whether they incur expenditure which will qualify for the relief and ensure that their suppliers are aware that they are a charity and thus qualify for zero-rating
• Review their expenditure to check they have not mistakenly been charged standard rate VAT for a qualifying service and request a refund and a VAT only credit note if applicable
• Review expenditure incurred in the last 4 years to check that VAT has correctly been accounted for under the reverse charge mechanism in respect of supplies of advertising services on social media sites from businesses located outside the UK.
• Review their contracts with their advertising suppliers, particularly those with social media and subscription websites

For more information, contact our VAT team on the form below.

[Article reviewed and updated January 2024.]