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Adwords And Your VAT Return: A Guide For UK Businesses

Written by: Keith Silman

Article Overview: To find out whether you need to be VAT registered you need to calculate your VATable supplies. Under UK VAT rules you need to add Adwords expenditure onto your turnover in calculating whether you reach or exceed the threshold for registration. The current registration threshold is £70,000 for the preceeding 12 months (threshold changed 1 April 2010).

Adwords And Your VAT Return: A Guide For UK Businesses

Do you need to register for VAT?

To find out whether you need to be VAT registered you need to calculate your VATable supplies. This isn't as straight forward as it initially seems. Under UK VAT rules you need to add Adwords expenditure onto your turnover in calculating your taxable supplies. The current registration threshold is £68,000 of taxable supplies for the preceding 12 months (threshold applies from 1 April 2010).

At the end of each month you need to calculate your taxable supplies for the previous 12 months. If you meet or exceed this threshold you are legally required to register for VAT with HMRC within 1 month of the end of the month you exceeded the threshold.

Adsense

Adsense income and non UK/EC income (eg US, Gibraltar etc commissions) are excluded from this calculation as they are “out of the scope of UK VAT”.

Adwords (and other non UK PPC)

Even though you do not pay VAT on Google Adwords and therefore have nothing to reclaim, it must be included in your VAT Return as it is an advertising service. Advertising services received from other EC states (e.g. Ireland) come under the reverse charge rules. This guide also applies to advertising paid to companies such as Facebook, Microsoft Adcenter and other non UK advertising services.


What to include on your VAT Return

Box 1 - In addition to the VAT you have charged on your UK sales you should add the “deemed VAT” at 17.5% of the Adwords invoice value.

Box 4 - In addition to the VAT you have been charged on your UK purchases/expenses you should add the “deemed VAT” at 17.5% of the Adwords invoice value.

As you can see the additional figures included in Boxes 1 and 4 cancel each other out and do not increase the VAT due to HMRC unless you have exempt/partially exempt sales as the rules restrict the amount of input tax you can reclaim. Partial exemption is not covered in this article.

Box 6 - Add the net Adwords costs to your sales figure.

Box 7 - Add the net Adwords costs to your purchases figure (if you are using a computerised accounting system, check your figures to make sure that the Adwords costs are not double counted).

As Adwords are advertising services and not goods, the figures do not need to be included in boxes 2, 8 and 9.

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Article Tags: Adcenter, advertising, Facebook, Microsoft, uk businesses, uk vat, vat return



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