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VAT for affiliate marketeers

vat for affiliate marketeers VAT for affiliate marketeers I regularly receive enquiries from affiliates who are confused as to how VAT affects their business. In particular they need to know what has to be taken into account when looking at whether or not they need to be VAT registered.

The VAT rules as they apply to UK affiliate marketeers are quite complicated and not only do you have to split your commission income into several types, you also need to keep track of costs of services supplied to you from businesses located outside the UK.

For VAT purposes only, the vast majority of business to business (B2B) services are deemed to be received where the customer belongs and the customer has to account for the VAT.

VAT registration

The registration threshold is currently £85,000 of “taxable supplies” for the preceding 12 months. For VAT registration purposes, services purchased from outside UK (eg Google Adwords, Facebook advertising, Twitter advertising, Microsoft/Bing advertising, non UK hosting, non UK programmers and designers etc) should be added onto your UK turnover (ie sales income) in calculating your taxable supplies and whether you should be VAT registered.

The services bought from outside UK are known as “Reverse Charge” services. Sales which are out of the scope of UK VAT can be excluded from this calculation. A common example being non UK advertising commissions (Adsense, Amazon, Mediavine, Ebay Partner Network etc).

For example, if for the preceding 12 months, the total of your spend on Reverse Charge services (Adwords, Facebook, Twitter, Bing etc) is £32,000 and commission income (from UK networks) is £53,001 then you must register for VAT as your total “taxable supplies” are £85,001.

Why expenditure on Reverse Charge services (eg Adwords, Facebook, Twitter etc) is included even though it is a purchase and not a sale

As you probably know, Google Adwords, Twitter and Facebook advertising are invoiced from Ireland which is part of the EC and not the UK. Advertising services for VAT purposes are deemed to be supplied where the customer belongs and therefore under the VAT reverse charge rules you are considered to be both the supplier and receiver of the services for VAT purposes only.

VAT notice 700 deals with this and the relevant sections are quoted below …

“5.4 Services received from outside the UK
If you receive from outside the UK for business purposes, any of the services listed in Section 31 [* Section 31 includes advertising services ie Adwords *], the services are treated as if you supply them, and you must account for output tax on them.

If you receive from outside the UK any of the services listed in Section 31, their value counts towards your taxable turnover. This applies even if the only supplies you make in the UK are exempt.”

This isn’t as bad as it seems. If you have registered with Adwords as a business you do not pay the VAT.

Therefore the deemed output VAT @ 20% of the Adwords expenditure for the quarter is shown on the VAT return (Box 1) and is offset by the deemed input VAT @ 20% of the Adwords expenditure which is included in the input tax (Box 4) on the VAT return.

So being VAT registered just because the total of Adwords and sales take you over the VAT threshold will not increase the VAT payable and you will be able to reclaim UK VAT charged on broadband, accountancy, hosting, domains, computer equipment etc.

However, if you are a VAT exempt or partially exempt business you will not be able to deduct the deemed input VAT in your VAT return which would put you in the same position as if you bought the services from a UK supplier.

Adsense and other income out of the scope of UK VAT

Adsense income is “out of the scope of UK VAT” and is excluded from the calculation of taxable supplies. However, Adsense income is still taxable under income or corporation tax, whichever is relevant for your business.

Income outside the scope of UK VAT also include commissions from Amazon, Mediavine, Ebay Partner Network and other networks based in Gibraltar, Israel, USA etc .

[article updated 01 August 2019]