Charity digital advertising and VAT: which channels are zero rated

Your charity has just approved a £60,000 digital campaign. Some of it will be zero rated for VAT, some of it will carry 20%, and the difference is not about how much you spend or who you spend it with. It is about how the advertising finds its audience. So which digital channels qualify for the charity advertising zero rate, and which ones quietly cost you an extra 20%?

What is the charity advertising zero rate?

Advertising supplied to a charity is zero rated under Group 15 of Schedule 8 of the VAT Act 1994. The relief covers:

• the right to place an advertisement in a medium of communication with the public
• the actual placing of that advertisement
• design and production of the advertisement
• goods closely related to that design and production

Two conditions matter. The supply must come from a third party, not be done in house. And it must be made to the charity itself, not to its trading subsidiary.

The content is irrelevant. Fundraising appeals, awareness campaigns and staff recruitment adverts all qualify equally.

Example. A charity commissions a £50,000 campaign. If every element qualifies, it pays £50,000. If the campaign is standard rated and the charity has no taxable business activity to recover input tax against, it pays £60,000. That £10,000 is not a tax the charity can reclaim. It is simply £10,000 less campaign.

What is the selected media exclusion?

Here is the principle that decides everything.

The relief applies to advertising aimed at the general public. It is withdrawn where the members of the public who see it are selected by or on behalf of the charity, including selection by postal address, telephone number or email address, and including selection at random.

So direct mail, telesales and email marketing all fall outside the relief, because each one reaches a person the charity picked.

Two further exclusions are worth knowing. Anything that goes into building the charity’s own website is excluded, because you are not buying someone else’s space. And adverts designed in house by the charity’s own staff are outside the relief, because there is no third party supply.

Which digital channels are zero rated?

HMRC reviewed digital advertising in 2020 and accepted that some, though not all, of it qualifies. Its current published position treats the following as zero rated:

• Audience targeting
• Behavioural targeting, including using cookies to show adverts to people who previously visited a website
• Channel targeting
• Content targeting
• Daypart targeting
• Demographic targeting
• Device targeting
• Direct placements on third party websites
• Location targeting, where individuals have opted to share location data that is then aggregated
• Lookalike targeting
• Pay per click advertising, including sponsored search links
• Retargeting

That list surprises people. Behavioural targeting and retargeting both follow individuals around the internet using cookies, and yet HMRC accepts them.

Which digital channels are standard rated?

Three, and the first one is the one that hurts.

Social media advertising. HMRC’s position is that where individuals log into their personal pages, the platform applies advertising to them based on personal interests and location data it holds about that individual. That makes it selected media, and it is standard rated.

Email advertising. Adverts sent to email addresses are targeted at the individual recipient.

Natural hits. A charity appearing in organic search results is not advertising at all, so there is nothing to zero rate. Related to that, copywriting and design services supplied for search engine optimisation purposes do not qualify either, even though design work for a qualifying advertisement does.

Warning! The social media point is the one that catches charities out, because it sits right next to zero rated channels in the same media plan and is often bought from the same agency on the same invoice. Paid search is zero rated. A promoted post on a social platform is not.

Why does the line fall where it does?

HMRC distinguishes between advertising that selects a broad audience by criteria and advertising that reaches an individual personally, on their own logged in page or at their own address.

Behavioural targeting builds a segment of people who behaved a certain way, then advertises to that segment. Social media advertising places the advert on a page belonging to a specific identified person. To HMRC that is the difference between advertising to the public and advertising to selected individuals, even though both feel targeted to whoever is paying.

Note. This is HMRC’s stated administrative position rather than a principle decided by a court, and the boundary moves as platforms change how they work. Where a channel’s treatment is genuinely unclear, document the reasoning at the time rather than reconstructing it during a VAT inspection.

What should you do next?

Ask your agency to split the invoice. A single line reading “digital campaign” gives you no basis for treating any of it as zero rated.

Check who the supply is made to. If the invoice is addressed to your trading subsidiary rather than the charity, the relief is lost even if everything else is right.

Review the last four years. If social media has been treated as zero rated, or paid search as standard rated, there is an exposure or a refund sitting there. Both are worth quantifying.

Most accountants will not raise this, because it never appears in the accounts as a problem. We look because we are Chartered Tax Advisers as well as accountants, and a charity paying unnecessary irrecoverable VAT is losing money it can never earn back.

If your charity spends meaningfully on advertising, book a conversation with a Chartered Tax Adviser. There is more on our Charities and Not for Profits page, and a real charity VAT case in our tax saving case studies.