Charity online advertising and VAT zero rating

We published a news item earlier this year confirming that charities have been contacted by HMRC in relation to advertising on social media.  Most advertising for charities is zero rated, however HMRC have been clarifying their interpretation on specific situations and contacting charities whom they believe may be receiving zero rating in error.

HMRC has been in dialogue recently with the Charity Tax Group and the following summarises the result of these discussions.

HMRC has confirmed that:

  • ‘Natural hits’ are not supplies of advertising for the purposes of the zero rating provision so are standard rated;
  • Pay-per-click adverts are advertisements for the purposes of the zero rating provisions as they do not involve selection by address.
  • Direct placements on third party websites are advertisements for the purposes the zero rating provision as they do not involve selection by address. They are therefore zero rated.

The key issue seems to be whether individuals are selected when they access a social media account or a subscribed website, and an advertisement is, effectively, waiting for them because that account has been preselected based on data held by them.

Zero rating for charity advertising

The VAT Act zero rates the supply of advertising to charities.  The law exists to assist with the promotion of charities to the wider public, however it states that this does not include instances where any of the members of the public (whether individuals or other persons) who are reached through a particular 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.

HMRC’s policy is widely interpreted and covers, for example, direct mail and e-mails sent to ‘the occupier’ and even that addressed by inference when it is delivered to every address in a location but not individually marked. It also covers all telephone calls whether or not the person receiving the call is known to the charity even when the number is selected at random. In each of these cases, therefore, an individual (or family) or address has been specifically targeted to receive information rather than an advert being placed that may or may not reach particular members of the public.

Due to the way certain social media works, content is often based on the sites using tools to apply content, including advertising, to the individual’s personal page or presence when signed in. The content is based on the individual’s likes, dislikes, interests, location, etc., associated with the address of that individual’s page, or to their presence as a signed in member of a website. HMRC consider that this is selection of a recipient by an electronic address, and not the distribution of something to a wider public and as such it should be excluded from the relief.

In HMRC’s view, the individual has not made the selection themselves, but had an advertisement targeted directly at their digital address.



HMRC also put across their view on ‘Retargeting’ which is when data collected on users when they visit a site and uses this data to reach them again. For example, a user may visit a clothing site, browse products but not purchase – this user is tracked via cookies and then those cookies can be used to find them again as they browse the internet. It is important to note here that no PII [Personally Identifiable Information] is used here, so the advertiser does not know who the individuals are, simply that that a certain device has behaved in a certain way. If you were to use a shared computer, you would likely be retargeted with items which another user has looked at, as a result of this.

As explained above, HMRC’s policy on the advertising zero rating provision holds that cases where an individual, family, or address has been specifically targeted to receive information, rather than an advert being placed that may or may not reach particular members of the public, will be caught by the condition and cannot be zero rated.


Practical impact

As a lot of social media providers such as Google and Facebook are based overseas, any VAT that would be due is accounted for using the reverse charge (for VAT registered charities) but crucially it counts towards the VAT registration threshold for charities that are not currently VAT registered.

The whole situation appears to be subject to debate between what charities and HMRC believe is the correct position.  In what is a recurring them in VAT, a lot has to do with the advance of technology and the capabilities of social media not being even invented when the legislation was first drafted.

A VAT case considering these very issues would assist in clarifying the law, however we are not aware at this stage of a case that is in the pipeline.

If any charity has concerns over these issues please feel free to contact our VAT team today at