Google is the biggest player on the internet. Not only does it own the biggest search engine, it also offers one of the best platforms for online advertising.

If you’re not sure what PPC is, it stands for Pay Per Click advertising. These are the adverts that you see at the top and bottom of Google search results.

In 2016, approximately $35 billion was spent on paid advertising in America alone.  The industry is huge, and if you get it right, it can be a great source of leads for your business.

If you are already using PPC or are thinking of placing some adverts on Google for your business, we discuss how you can reclaim the VAT on your advertising spend.

Things to know:

  • The invoice you’ll receive from Google will have Google Ireland Ltd printed on it. That’s because Google (like many other large corporations) have based themselves in the Republic of Ireland.
  • PPC is ultimately an electronic service. The place of supply for VAT is in the country in which you are based. In this case, the UK. Therefore, if you are VAT registered you must account for it using the Reverse Charge System.

Reverse Charge System – what it involves

The Reverse Charge System is only used for services and is not applicable to goods. Also, if you are not VAT registered the Reverse Charge System will not apply.

The Reverse Charge is the amount of VAT you would have paid on a service if you had bought it from a company within the UK. This figure is added to the output VAT figure in Box 1 on the VAT return. Next, you add the same figure to your input VAT figure in Box 4 on the VAT return.

The net invoice value (without VAT) is added to your net sales in Box 6 on the VAT return. The same figure is added to your net purchases in Box 7 on the VAT return.

This system effectively cancels out the VAT figure, meaning you don’t pay anything to HMRC or reclaim anything back.

Example:

You spend £120 on Pay Per Click advertising. If Google was based in the UK, the standard rate of VAT (20%) would apply.

So, the Reverse Charge would be £24, or £120 x 20%.

Extra points worth knowing:

1. If you have not advised Google of your VAT registration number, you must do this immediately. Otherwise, they will invoice with Irish VAT added. You can do this through your Google AdWords account.

2. If you are not VAT registered, the amount of money you spend on PPC counts towards your sales in relation to the VAT threshold. This is because the Reverse Charge System classes the invoice from Google as if you have raised it yourself as a sale. So, if you think you are nearing the threshold or expect to exceed it within the next 30 days you must register for VAT.

3. If you are using the VAT Flat Rate Scheme, then you add the VAT amount to your output VAT (Box 1) and your input VAT (Box 4) of your return. You leave boxes 6 and 7 blank.

Want to know more?

If you would like further information on the Reverse Charge System or if you would like to discuss any details mentioned in this article in greater depth, please contact us on 01962 820375.