Pay per click advertising is extensively used by businesses throughout the UK, and a number of these providers are currently based in the Republic of Ireland. Where these providers invoice businesses outside the Republic of Ireland, they do so without adding VAT.
What is not known by many is that businesses based in the UK may be required to account for the VAT at the UK rate (20%) through the ‘reverse charge’ legislation, which applies to most service supplies received from suppliers based outside the UK. Even if your business makes only VAT-exempt supplies, nevertheless, the reverse charge supplies still count as a taxable supply for VAT purposes. For example, an insurance broker (exempt supply for VAT) spends £100,000 on a pay per click campaign. The business is required to be registered for VAT due to the reverse charge legislation and they must pay over the additional 20% on its purchases subject to a reverse charge (£20,000). As the business is exempt, it is unable to include the £20,000 in its input tax claim and so the campaign has cost the business a total of £120,000.
If you have paid the incorrect amount of VAT, there could be penalties and interest due. Reverse charges will affect most business to business supplies from outside the UK, and not just pay per click campaigns. Our specialist VAT team is happy to assist with any queries relating to reverse charges and your individual requirements.