One of my more popular VAT insights was one I wrote in 2013 on the scope for charities to buy advertising, and related design and production services, at the zero rate. The Insight included the policy change in Revenue & Customs Brief (“RCB”) 25/10: pay per click adverts have been allowed zero-rating since October 2010, although the services of SEO copywriters and designers have remained standard-rated. The world has become so digital in the meantime that HMRC has now issued RCB 13 (2020) to deal solely with assorted forms of digitally targeted advertising. The difficulties have arisen because the advertising must be through a medium of communication with “the public”. But what is “the public”?
In Notice 701/58 HMRC explains that the public means:
the general public, which can be widely interpreted to include businesses and small groups, such as:
- readers of a trade magazine
- readers of a religious magazine
- people in particular parts of the country who may be targeted by a general poster campaign in their area
However, “it does not include selected individuals or groups”. By this, HMRC means:
people who are:
- selected by individual home, business or email address whether named or not
- individually named people, all those at the same address such as family groups or everyone in a particular building
As a consequence, direct mail and telesales cannot be zero-rated as advertising. But what about the digital marketing that is driven by algorithms? Is that targeted at the general public and can it be zero-rated? This is the question that 13 (2020) addresses. Before we get to that, let’s recap the basic rules.
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
- Sides of vehicles
- Newspapers and magazines
Examples of qualifying 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
The services of copywriters and designers for search engine optimisation (“SEO”) purposes are standard-rated, as these are designed to increase hits on a charity’s own website. Therefore, there is no advertising to the general public in somebody else’s time or space.
Qualifying digital advertising
Unlike HMRC, I have not explained what some of the following jargon means. If you don’t know what it means and think it might be relevant to you then you can easily Google it or look at the Brief:
- Websites other than the charity’s own website
- Pay per click (“PPC”)-sponsored links on search engine websites
- Behavioural targeting
- Channel targeting
- Content targeting
- Daypart targeting
- Demographic targeting
- Device targeting
- Location targeting
- Lookalike targeting
What cannot be zero-rated?
The following are standard-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
- 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
Standard-rated digital advertising
HMRC still considers the following to be standard-rated because they are not targeted at the general public.
- Email advertising
- Social media/subscription website accounts
“Natural hits” are not regarded as advertising.
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.