Google Ads and VAT: It’s complicated

Google Ads and VAT: It’s complicated Alex Robertson May 13, 2024

It’s not uncommon for content creators of all kinds to use Google Ads to build audiences and profile for their ‘personal brand’ and their work.

But, for their own tax reasons, Google will bill you for those ads from Ireland – and that means the standard VAT rules don’t apply – and there’s a “reverse charge rule” which impacts on your obligations.

We should explain:

VAT (value added tax) is a consumption tax levied on most goods and services supplied within the UK. Typically, VAT is charged by the supplier and paid by the customer. However, the “reverse charge rule” introduces a twist for specific transactions.

The Reverse Charge Rule in Action

The reverse charge rule applies to certain services purchased by a VAT-registered business from a supplier located outside the UK. In this context, Google Ads services supplied by Google Ireland fall under this rule.

Here’s a breakdown of how it works:

  • No VAT charged by Google: Google will not include VAT on your Google Ads invoice.
  • Responsibility shifts: As a VAT-registered UK business, you become responsible for accounting for both the VAT charged and the VAT due on the purchase.
  • VAT Calculations: You’ll need to calculate the VAT amount based on the standard UK VAT rate (currently 20%) on the net cost of your Google Ads spend.
  • VAT Return: This calculated VAT amount should be reflected on your VAT return, both as input tax (recoverable) and output tax (payable to HMRC).

Simple, right?

Obviously not, but, despite the additional calculation step, the reverse charge rule offers some benefits:

  • Cash Flow Neutrality: Since you’re accounting for both input and output VAT, there’s no upfront VAT payment to Google. This can be beneficial for businesses with tight cash flow.
  • Simplified Record-Keeping: You don’t need to reclaim VAT separately from Google, as both input and output VAT are recorded within your own accounting system.

Even then, there’s more complexities you need to be aware of.

This rule only applies to VAT-registered businesses in the UK. Non-VAT registered businesses will still see VAT included on their Google Ads invoices. So consider whether it’s worth registering for VAT.

And accuracy is key. Incorrect VAT calculations can lead to penalties from HMRC. Ensure you have a clear understanding of the rule and maintain accurate records. So you should review your Google Ad invoices and ensure they correctly reflect the “reverse charge” nature of the service, and you should use use the current UK VAT rate (currently 20%) on the net cost of your Google Ads spend to calculate the VAT amount.

Making sure your Google Ads marketing efforts are VAT-compliant and contributing to your business success is important and keeping up with regulatory changes is as vital as record-keeping to make sure everything runs smoothly.

Frankly, we’re probably better placed to do that, so that you can concentrate on the creative stuff. So get in touch.

Remember, this blog provides general information and shouldn’t be considered professional tax advice. Consulting a qualified accountant is recommended for personalized guidance on your specific VAT situation.