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Farrers Office

What is the VAT exemption? 

Certain supplies to charities are listed as being “zero rated”, including these is the publishing of advertisements on behalf of a charity. It has been assumed that this exemption would apply when an internet platform publishes a charity advert on-line, so that the payment by the charity to the platform would not incur VAT.

Why would the exemption be denied?

The controversy arises from a carve-out to the zero rating rule which provides that where the recipients of an advert have been ‘selected’ by or on behalf of the charity, the zero rating cannot apply. The meaning given to the word 'selected' is very broad and includes selection by address (physical or electronic) or at random. In HMRC’s view, on-line advertising which only reaches certain browsers has been targeted at those 'selected' people and should not be zero rated. 

Is HMRC right?

The position HMRC is taking would seem to us to go against the purpose of the legislation; it is arguable that every advertisement is limited to a certain demographic which it can reach, and can never be made available to the whole public at large. Further, it is arguable that the selection which takes place on social media is not done by the charity or the social media platform but rather by the public themselves. When they chose to "like" or click on certain topics, to some extent they self-select the advertising that they subsequently receive. 

On the other side of the argument, the service provided by a social media platform is, in some respects, akin to a “distributer” and distribution services are not zero rated, meaning VAT would be payable. 

What is being done about this?

Following representations made by the Charity Tax Group, HMRC has recently re-considered the matter, but HMRC declared its position to be unchanged. Charities who are charged VAT for this mode of advertising are being urged to speak up and, where possible, work with their advertiser to reserve their position on VAT. It seems likely that a legal challenge will ultimately be required in order to give the arguments on this matter a full airing.

If you require further information please contact Charlotte Black, or your usual contact at the firm on +44 (0)20 3375 7000.

This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.

© Farrer & Co LLP, June 2018

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