Ensuring you are VAT compliant can be a minefield at the best of times, particularly if it's not immediately obvious how it applies to your business sector. This month we're looking at VAT for the media industry – here are four facts you may not know:
Advertising services are usually subject to VAT at the standard rate, with the exception of charities. There is relief available for these organisations allowing them to benefit from the zero rate on some forms of advertising, providing that the advertising is targeted at the general public as opposed to a specific sector. However, the huge increase in social media campaigns over the last few years has meant that HMRC is now investigating whether charity adverts through this medium should qualify for VAT relief.
As Google and Facebook operate out of Ireland, this means that any UK business customer must account for VAT used on the supply of the service, and then claim VAT recovery subsequently. It's possible that if the standard rate is brought in for charities who have purchased digital advertising from overseas, they could end up owing HMRC a considerable amount of money in back payments, for up to the last four years.
If your company is VAT-registered, you must make sure that VAT is charged on all billable expenses. Staying in a hotel usually incurs standard VAT rate, and your client should be billed what you paid, including VAT. Flights are zero-rated, but when you charge your client you need to add 20% VAT onto the bill. It's also important to remember if you incur VAT on expenses whilst on business in the EU, you can't currently reclaim it on a UK VAT return.
In May, HMRC provided an update concerning VAT and sponsorship which media companies will need to take on board, particularly as it's the first update in this area for twenty years. If you make taxable supplies in return for sponsorship you must account for VAT on a value that covers everything you get under the sponsorship agreement. The update also covers crowdfunding for the first time, but whether a recipient of crowdfunding is liable to charge and pay VAT is a case-dependent issue.
For example, where the funder receives goods or services with a real value, for example film viewings or clothing, then VAT is due. If the funding involves an investment where the funder is entitled to a financial return, such as a share of the profits, any payment due to the funder will not be liable for VAT, unless the arrangement is royalty-based on a supply of intellectual property or some other benefit.
The CAP Code is a book of rules for non-broadcast advertisements, sales promotions, and direct marketing communications, and it specifies that prices in advertisements should include non-optional taxes, duties, fees and charges that apply to the majority of purchasers.
A high proportion of complaints to the Advertising Standards Authority concerns the incorrect use of VAT-inclusive and VAT-exclusive prices, so it's vital to ensure you have calculated correctly. You are required to quote VAT-inclusive prices if both consumers and businesses will see the advert and can buy the product. VAT-exclusive prices should be presented with the percentage rate which will apply.
If your business offers media services, VAT compliance can be extremely complicated. Get in touch with our helpful team - we're experienced in cutting our way through the jargon and presenting you with practical and expert advice.
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