HMRC Provide Some Clarity on VAT and Charity Online Advertising

Public Notice 701/58 states that, provided they meet the conditions, advertisements supplied to charities will qualify for VAT zero-rating. Any charity can benefit provided the supply is made by a third party, including its separately VAT-registered trading subsidiary. However, the relief is not available for supplies made to trading companies.

For the purposes of the zero-rate, charities may advertise through any medium which communicates with the general public, including the conventional advertising media such as:

  • Television
  • Cinema
  • Billboards
  • Vehicles
  • Newspapers
  • Printed publications

It is essential that the advertising is intended to reach the “general public”, which can be widely interpreted to include businesses and small groups. However, it does not include specifically selected or targeted individuals. In the era of modern online advertising, there has been some confusion around precisely what advertising is aimed at the general public and where individuals have been specifically selected. HMRC now accept that online advertising is a complex and constantly changing market and that VAT legislation has not kept up with technological advances.

The relevant law is found in Note 10A to Group 15, Schedule 8 of VATA 1994 and states that the zero-rate does not apply where:

“…any of the members of the public (whether individuals or other persons) who are reached through the medium are selected by or on behalf of the charity.

For this purpose, “selected” includes selected by address (whether postal address or telephone number, e-mail address or other address for electronic communications purposes) or at random.”

The uncertainty has arisen as a result of advances in technology which now allow “targeting” based on other factors such as online behaviours or demographics. Revenue & Customs Brief 13 (2020) has provided some clarity around the following such types of advertising:

  • Retargeting – a user is tracked using cookies and those cookies are used to find that individual again.
  • Behavioural Targeting – cookies are used to identify people who have expressed an interest in a relevant area.
  • Demographic Targeting – data from a number of different sources. This can be logged data, such as DOB information taken from email providers and behavioural data.
  • Audience Targeting – the use of demographic and behavioural data alongside data from additional sources.
  • Lookalike Targeting – similar to audience targeting, cookies are used to assess common behaviours of existing users or donators. The advertiser then looks for more people who fit the group.
  • Daypart Targeting – advertisers choose to target only specific times of day or specific days of the week, without any decisions involving recipients.
  • Location targeting – this is similar to behavioural targeting. When individuals opt in to provide location data, this information is collected and combined into large datasets to target audiences who have visited particular areas.

HMRC has now confirmed that these types of advertising are eligible for the zero-rate as the methods discussed target aggregated audiences rather than specific individuals. It also maintains that adverts which are sent directly to a particular person’s social media and subscription accounts are targeted at the individual and are standard rated supplies for VAT purposes.

Whilst we are glad to see HMRC accepting that the law, as it came into force 20 years ago, is no longer suitable to deal with the broad array of online advertising methods, it is slightly disappointing that no new legislation has been contemplated in this time. We hope that, similarly to the zero-rate for electronic publications, this issue will soon be formally considered by lawmakers and certainty can be legislated.

What Does This Mean for Charities?

As the position has been quite unclear for some considerable time, it is envisaged that there may be charities that have been charged VAT which they should not have been on supplies of zero-rated online advertising services. Many charities are not able to recover all of the VAT incurred as input tax and all, or part, of this VAT charge may have represented an absolute cost to a significant number of charities.

There may be an opportunity for charities to approach UK suppliers who have incorrectly charged VAT and to request a repayment of VAT charged in error from those suppliers. A VAT registered supplier may only be able to retrospectively adjust its VAT returns for the last 4 years to reclaim erroneously charged VAT from HMRC. We would expect that in such circumstances there is no loss to either the charity or the supplier and that the position is VAT neutral.

Depending on the contracts in place between charities and providers, it may be possible in certain individual circumstances to correct the position retrospectively beyond 4 years. However, this would be case specific and should not be taken as the general position. If a supplier has charged VAT by mistake, but perhaps in line with HMRC’s policy at that time, it can only adjust VAT accounting errors up to 4 years but not beyond. This may, potentially, be an issue for suppliers. Constable VAT would be pleased to liaise with suppliers on behalf of any charity that feels it has been charged VAT incorrectly.

Where charities are VAT registered and have used overseas suppliers, UK VAT should have been accounted for by the charity under the reverse charge mechanism where those supplies would be subject to VAT in the UK. These rules dictate that UK charities which are the recipients of supplies from overseas providers must account for any VAT due on supplies received. Charities in this position may have incorrectly accounted for reverse charge VAT on supplies which should have been treated as zero-rated. If the charity is VAT registered, it may be possible to retrospectively correct the position going back 4 years. This is on the basis that not all the reverse charge VAT accounted for was recoverable in full by the charity. Constable VAT would be happy to assist with the quantification and submission of such claims to HMRC.

If you would like to discuss anything highlighted in this newsletter, or any other VAT questions which you may have, please do not hesitate to contact Stewart Henry (, Laura Krickova (, Sophie Cox (, Alex Raynes ( or your usual Constable VAT contact– we will be pleased to assist. Please call our London office (020 7830 9669) or our East Anglian office (01206 321029) if you think that an initial discussion would be helpful.

Constable VAT Consultancy LLP is a specialist independent VAT practice with offices in London and East Anglia. We work together with many charities and not-for-profit bodies ranging from national charities, those working overseas, and regionally based local organisations. Constable VAT has a nationwide client base.

We understand that charities wish to achieve their objectives whilst satisfying the legal requirements placed upon them. Charities may be liable to account for VAT on supplies made and VAT will be payable on certain expenditure. As irrecoverable VAT represents an absolute cost to most charities, regardless of their VAT registration status, there is a need to review the position regularly and carefully. We offer advice with planning initiatives, technical compliance issues, complex transactions, help with innovative ideas on VAT saving opportunities, and liaising with HMRC.

This newsletter is intended as a general guide to current VAT issues and is not intended to be a comprehensive statement of the law. No liability is accepted for the opinions it contains or for any errors or omissions. Constable VAT cannot accept responsibility for loss incurred by any person, company or entity as a result of acting, or failing to act, on any material in this newsletter. Specialist VAT advice should always be sought in relation to your particular circumstance.