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Changes to treatment of pay-per-click ads for charities

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Charities have recently received good news from HMRC in a change to their policy on the VAT treatment of pay-per-click advertisements on sponsored links and other related services.

Pay-per-click advertisements involve the charity paying search engines, such as Google, a fee every time a user clicks on the charity’s sponsored link on the results page of a search.

Until now, HMRC’s view has been that such advertisements are standard rated, the rationale being that these were not advertisements as such, but simply a means of accessing the charity’s own website.

Therefore, zero rating did not apply, in accordance with Note 10B to VATA 94 Schedule 8 Group 15 ‘Charities’, which states the relief does not apply to the costs of providing a charity’s website.

Charities themselves, of course, argued that these advertisements fell within Item 8 and 8A-8C of Group 15, which applies the zero rate to adverts placed on  a third party’s website.

HMRC have now changed their policy following representations from affected charities and now accept pay-per-click advertisements do qualify for zero-rating, as do associated copyright and design services. That is the good news.

There is some bad news, however, in that HMRC still consider the services of copywriters and designers, for the purpose of ‘search engine optimisation’, to be outside the scope of the relief and therefore standard rated. ‘Search engine optimisation’ means ‘structuring a website so that it contains as many keywords as possible’.

Those that have treated supplies of pay-per-click advertisements as standard rated until now can submit overdeclaration claims, although these will be subject to a transitional four-year limitation period and the unjust enrichment rules.