Google Adwords pay per click advertising is
now one of the most common advertising methods used by businesses yet a
lot of people do not understand how to correctly account for the VAT on
Google Adwords. It is important you complete VAT returns correctly as
HMRC can impose penalties.
You will be invoiced for your Google Adwords expenditure by Google Ireland Ltd who are based, as the name suggests, in Ireland. As this is an electronic service the place of supply for VAT purposes is the country in which you (the customer) are based i.e. the UK. This means that if you are VAT registered you must account for VAT using the ‘reverse charge system’.
a) Work out the UK VAT at 20% on the invoice value i.e. £100 invoice value gives £20 of UK VAT.
b) Add £20 of VAT to your output VAT figure in Box 1 of the VAT return
c) Add £20 of VAT to your input VAT figure in Box 4 of the VAT return
d) Add £100 net invoice value to your net sales in Box 6 of the VAT return
e) Add £100 net invoice value to your net purchases in Box 7 of the VAT return.
The overall effect is that you have added £20 of VAT to your VAT handed over on sales and reclaimed £20 of VAT from your VAT reclaimed on purchases so your overall VAT payable is unchanged.
1) Make sure you inform Google of your VAT number
If you are VAT registered you need to inform Google Adwords of your VAT number. If you do not do this Google will invoice you with Irish VAT added. To do this log into your Google Adwords account, select the Billing tab then click Billing Profile. Within the Billing Profile you click edit and enter your UK VAT registration number. Once you have done this Google will invoice you without any VAT and you can account for this under the Reverse Charge system discussed above
2) Adwords spend counts in your VAT turnover threshold
If you are not VAT registered beware that the value of Google Adwords expenditure is counted as part of your sales when considering whether you have hit the VAT registration threshold. That’s because the Reverse Charge VAT rules treat this Adwords invoice as if you have raised it yourself as a sale. So if your total sales including Adwords expenditure is more than £77,000 in the past 12 months or you expect to exceed that in the next 30 days alone your must register for VAT.
3) Reverse charge VAT on the Flat Rate VAT scheme
If you are registered on the flat rate VAT scheme (what’s Flat Rate VAT) then you add the deemed VAT (i.e. 20% of the invoice) to your output VAT in Box 1 and your input VAT in Box 4, as you would on the normal VAT scheme. However you do not add anything to boxes 6 or 7 of your VAT return relating to Reverse Charge supplies when you are on Flat Rate VAT scheme.
You will be invoiced for your Google Adwords expenditure by Google Ireland Ltd who are based, as the name suggests, in Ireland. As this is an electronic service the place of supply for VAT purposes is the country in which you (the customer) are based i.e. the UK. This means that if you are VAT registered you must account for VAT using the ‘reverse charge system’.
How does the reverse charge VAT system work:
Under the Reverse Charge VAT rules you effectively act both as the supplier and the customer of the service, based in the UK using UK VAT rates. This means you charge yourself VAT on the invoice then also reclaim it on the same VAT return, giving a net effect of zero provided you are not partially exempt or exempt from VAT. So if you received an invoice from Google Adwords for £100 (no VAT) you would account for it as follows:a) Work out the UK VAT at 20% on the invoice value i.e. £100 invoice value gives £20 of UK VAT.
b) Add £20 of VAT to your output VAT figure in Box 1 of the VAT return
c) Add £20 of VAT to your input VAT figure in Box 4 of the VAT return
d) Add £100 net invoice value to your net sales in Box 6 of the VAT return
e) Add £100 net invoice value to your net purchases in Box 7 of the VAT return.
The overall effect is that you have added £20 of VAT to your VAT handed over on sales and reclaimed £20 of VAT from your VAT reclaimed on purchases so your overall VAT payable is unchanged.
A few extra points to note when dealing with VAT on Google Adwords:
1) Make sure you inform Google of your VAT number
If you are VAT registered you need to inform Google Adwords of your VAT number. If you do not do this Google will invoice you with Irish VAT added. To do this log into your Google Adwords account, select the Billing tab then click Billing Profile. Within the Billing Profile you click edit and enter your UK VAT registration number. Once you have done this Google will invoice you without any VAT and you can account for this under the Reverse Charge system discussed above
2) Adwords spend counts in your VAT turnover threshold
If you are not VAT registered beware that the value of Google Adwords expenditure is counted as part of your sales when considering whether you have hit the VAT registration threshold. That’s because the Reverse Charge VAT rules treat this Adwords invoice as if you have raised it yourself as a sale. So if your total sales including Adwords expenditure is more than £77,000 in the past 12 months or you expect to exceed that in the next 30 days alone your must register for VAT.
3) Reverse charge VAT on the Flat Rate VAT scheme
If you are registered on the flat rate VAT scheme (what’s Flat Rate VAT) then you add the deemed VAT (i.e. 20% of the invoice) to your output VAT in Box 1 and your input VAT in Box 4, as you would on the normal VAT scheme. However you do not add anything to boxes 6 or 7 of your VAT return relating to Reverse Charge supplies when you are on Flat Rate VAT scheme.
No comments:
Post a Comment