Something close to panic is breaking out in UK media agencies as they contemplate huge bills from tax collection body HMRC over ads placed in social media.
Most charity purchases in the UK are VAT free (VAT is currently 20 per cent) but HMRC has ruled that, because ads in social medias are targeted rather than aimed at the general public (direct marketing in other words) they should not be VAT exempt.
HMRC says: “Advertising on social media is often targeted at selected individuals or groups. Providers use techniques such as advance tracking options and reliable conversion tracking to reach a select target audience to receive the advertisement.
“Where advertising is targeted in this way it does not meet the conditions for the charity advertising relief as it is not being communicated to the general public. The supply of advertising services will be subject to VAT at the standard rate.”
Which is bad enough enough for media agencies with charity accounts (the agency is the principal in the contract, not the advertiser) but HMRC is now saying it wants to make this retrospective, going back up to four years which means some agencies face huge bills. Bills their charity clients may be unwilling or unable to pay on their behalf.
It isn’t good news for the likes of Facebook either but such companies can easily take the hit from a loss of charity advertising. Big holding company media agencies are apparently unwilling to make a fuss about the ruling, seemingly taking the view that they can find the money somewhere from their various dealings.
But some smaller ones are facing a potentially life-threatening situation. Trade bodies including the UK’s IPA (which represents media as well as creative agencies) are coming under pressure to act but their larger members seem unwilling to help out their smaller brethren.