Adwords And Your VAT Return

Do you need to register for VAT?

To decide whether you need to be VAT registered you need to calculate your VATable supplies. For this purpose Adwords expenditure should be added onto your turnover in calculating whether you reach or exceed the threshold for registration.

The current registration threshold is £68,000 for the preceeding 12 months (threshold changed 1 April 2009).

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”.

The rest of this article assumes that you are VAT registered. If you have met the threshold or wish to voluntarily register for VAT, we at HRBS would be pleased to help you. For a fixed fee quotation please click here.

How to include Adwords in your VAT return (not flat rate scheme).

As discussed in my article “VAT for Affiliate Marketeers“, even though you do not pay VAT on Google Adwords and therefore have nothing to reclaim, it must be included as it is an advertising service. Advertising services received from other EC states (e.g. Ireland) come under the reverse charge rules.

Box 1 – In addition to the VAT you have charged on your UK sales you should add the “deemed VAT” at 15% of the Adwords invoice value (17.5% for invoices before 1 December 2008 and after 31 December 2009).

Box 4 – In addition to the VAT you have been charged on your UK purchases/expenses you should add the “deemed VAT” at 15% of the Adwords invoice value (17.5% for invoices before 1 December 2008 and after 31 December 2009)

The additional figures included in Boxes 1 and 4 cancel each other out and do not increase the VAT due to HMRC. However, if you have exempt/partially exempt sales the rules restrict the amount of input tax and also “deemed input tax” that you can reclaim.

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.

Adwords and the flat rate scheme (Reverse charge VAT)

Although your Adwords spend is taken into account when calculating your VATable supplies for VAT registration purposes, it is not included in your flat rate turnover on your VAT return (see section 6.4 of the VAT Guide 733).

The flat rate VAT scheme is a complex area and is covered in our easy to understand guide on the VAT flat rate scheme for affiliate marketeers.

Feel free to contact us by email or by calling 01226 379000 to discuss your business and how HRBS can help you.

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