Q:
I am in the process of forecasting for a start up business. This business will generate a significant proportion of its income from online advertising revenue. These adverts will be provided by an intermediary AD sales agency operating from the UK. I am struggling to confirm whether this income stream is subject to VAT or not and have received conflicting advice. Has anyone had any experience of this?
A:
Hi
I don’t give definitive advice here on the forum about any specific transaction but I’ve set out the general principles below and explained why you might be getting conflicting information.
Advertising is one of those services that comes under the “supplied where received” rule which means that if you are providing services to a UK business, then you charge VAT as the service takes place in the UK. If you provide such services to a business in another EC country or to anyone outside the EC, then you don’t charge VAT as the service is deemed to take place where the customer belongs, ie outside the UK.
The rules are explained in VAT Notice 741A “The Place of Supply of Services” on the HMRC website here http://tinyurl.com/37bnn6v. I don’t know how familiar you are with the rules on international services but the main principles are set out in the first few sections of the notice and advertising is discussed in section 15.4.
That’s the general rule but you need to work out the contractual arrangements to establish who you are providing teh advertising services to as the contractual position is usually what defines the VAT liability. And this is often complicated by transactions involving agents.
I suspect that the reason that you’ve received conflicting information is that it’s not clear whether your services are being supplied to the agent in the UK or to the clients.
You say that your advertising will be “provided by an intermediary AD sales agency operating from the UK”. I’m not sure exactly what that means as transactions involving ad agencies are sometimes not true agency in VAT terms. This is because as the “agent” might be acting as principal for VAT purposes, ie buying and selling the service as principal and possibly billing the clients in their own name. If, for example, you invoice the agent for 100% of the revenue and then the agent invoices the clients, then it may be the case that your services are being supplied to the UK agent and not the clients.
So you need to establish the correct contractual position and you might need to ask your solicitor to confirm all of this. I’d be happy to help through my consultancy service if you require formal advice on the VAT issues. Either way I’d recommend you take formal advice on this to get the VAT liability correct especially if your income from this activity could be substantial.
Hope this helps
Marie