Does Facebook Charge VAT? A Must-Read for UK Businesses Using Facebook Ads
Understanding the complexities while running advertisements on Facebook could be challenging. You might look up to Facebook for selling products, services or when you need to promote an event. This will make you wonder about VAT on Facebook ads. Since Facebook’s Billing Entity for the UK is Facebook Ireland Ltd, running Facebook ads can be considered as buying services from abroad.
So now, if you’re left wondering, does Facebook charge VAT on advertising? We’ve got it covered in this article. Let’s break down the entire VAT complexities of running Facebook ads in a clear step-by-step guide.
What Is VAT and Why Does It Matter for Facebook Ads?
VAT is a value-added tax that you pay on the sales of goods and services in the UK. In the UK, the VAT charge is up to 20% standard rate. The Facebook ads VAT rate in UK is also 20%.
So, here’s the thing. When you are running ads on Facebook, Facebook is selling those ads to you in return for the price you pay.
Now, Facebook is not registered in the UK, instead, the billing body is registered in Ireland as Facebook Ireland Ltd. So, you’re making a cross-border purchase or international transaction from Ireland.
So even if you’re not being charged for VAT on Facebook, you still must register for it or report it in your VAT report in some cases.
Does Facebook Charge VAT in the UK?
The answer is no. Facebook used to charge VAT on behalf of the Irish VAT when the UK was part of the EU. However, since Brexit Facebook doesn’t charge VAT on ads run by UK businesses registered with HMRC. UK businesses are now self-accountable for VAT. They will need to report VAT to HMRC and apply Facebook reverse charge VAT rule to claim their VAT.
However, Facebook may charge VAT if you have not provided the VAT number to Facebook Ads Manager. Facebook charges VAT on behalf of HMRC and mentions it in your Facebook ads VAT invoice.
Two Different Scenarios: VAT-Registered vs Not VAT-Registered
There are two different case scenarios: you’re either eligible for VAT or not. Similarly, there are different ways you have to deal with VAT in both cases.
If You’re Registered with VAT:
If you are already registered for VAT with HMRC, you will have a VAT number. So, Facebook doesn’t add your VAT to your invoices. Instead, you have to report it on your VAT return. If you are below the £90,000 threshold, you would not need to pay for VAT. However, if you are above this threshold, you will need to apply for a reverse charge in your VAT return.
Now, what does reverse charge mean?
It means that you would calculate the VAT on Facebook Advertising, which is 20% and report it in your VAT return. But now you will also claim the exact 20% VAT back from HMRC. In reality, you don’t pay or receive anything but the mere formality to show the application of reverse charge with your Facebook ads transaction.
Making it clearer. You will need to report your VAT due, which is 20% of sales, goods, the reverse charge VAT from Facebook ads, and other outputs, on Box 1 of your VAT return. While in Box 4, you will report the same amount of reverse charge VAT on Facebook ads as VAT reclaimed on your purchases.
Facebook Ads VAT on VAT-Exempt Businesses
If your business offers services which are VAT-exempt, then you will be charged VAT on Facebook ads and cannot apply for the reverse charge scheme. This is slightly different for businesses which pay VAT for domestic transactions.
The VAT-exempt businesses like healthcare, education, financial services and more, which don’t generally pay VAT in the UK for domestic transactions, will be liable for 20% VAT on Facebook ads. They cannot reclaim this VAT under the reverse charge mechanism in Box 4 of the VAT return.
For example, your business offers healthcare services and runs Facebook ads worth £92,000. Now, the VAT they will need to pay HMRC will be £18,400.
So, while running Facebook ads worth £92,000, your healthcare will pay a total amount of £110,400, of which 18,400 is filed as 20% in your VAT return.
If You’re Not VAT-Registered:
This is where many businesses in the UK don’t realise that they must register for VAT if they run Facebook ads above the £90,000 threshold.
Many business owners think that they don’t need to report VAT. When running Facebook ads, you need to provide your VAT to Meta Ads Manager. If you’re not registered under VAT and don’t have a VAT number, then Facebook will deduct 20% VAT on behalf of HMRC.
What Should Your Facebook Invoices Show?
Every time you run your Facebook ad, you will be given an invoice that you can download. You should save it regularly.
A Facebook invoice will include the following aspects:
- Your business name and address
- Facebook’s VAT number
- The amount spent (excluding VAT)
- A note saying that VAT reverse charge applies
- Your VAT number (if you’ve added it in your settings)
Make sure that you have mentioned your VAT number in your ad settings. Otherwise, your account may have an error in VAT details.
Can the Reverse Charge Mechanism be Ignored
The Facebook ads reverse charge VAT rule is developed by the UK government to ensure that businesses purchasing cross-border services do not avoid VAT. The reverse charge mechanism works in a simplified way, which includes:
- You must report both input Facebook advertising VAT and output VAT on your VAT return without any extra charge.
- If you are not registered, then Facebook will deduct 20% VAT on behalf of HMRC, and will include it in Facebook ads VAT receipt.
Does Targeting Outside the UK Matter?
Another asked question is ‘My ad is targeted in countries like UAE/ USA/ Canada? Now Do you pay VAT on Facebook ads?
Yes, VAT will apply to your Facebook ads, even if targeted in different countries. The only thing that matters is where your business is located and where you are registered for VAT.
HMRC will only care if the buyer is based in the UK and therefore will be liable for VAT. Thus, you will be liable for Facebook advertising VAT irrespective of the country.
How to Ensure VAT Compliance for Facebook Ads in the UK
In order to stay organized and compliant with HMRC, you should manage your Facebook ads in the following manner:
- Add your VAT number to Meta Ads Manager
- Download every ad invoice from Facebook ads
- Track your monthly ad expenditure
- Ensure your VAT is according to the threshold
- If you fall within the VAT registration threshold, then register with HMRC for VAT
- File Your VAT Return and claim expenses through the reverse charge rule
FAQs
Can I claim VAT back on Facebook advertising?
Yes, you can claim VAT on Facebook advertising under the reverse charge rule in the UK. This means you will calculate and report the 20% VAT on your advertising expenses and reclaim it through your VAT return.
Do Facebook charge VAT on advertising?
Only when you are not registered with VAT and do not provide any VAT number, Facebook will charge 20% VAT on behalf of HMRC. However, if you provide your VAT number to Facebook, then Facebook will not charge VAT, and you will have to report and claim VAT through the reverse charge rule from HMRC.
How to see the VAT amount I paid to Facebook?
In your Facebook ad account, go to the menu and then the billing option to see your payment history. There, you will be able to see the Facebook ad invoice.
How can I add VAT registration number to my Facebook Ads Manager?
Follow these steps to enter your VAT number in Facebook Ads Manager
- Go to Ads Manager
- Click on ‘Payment Settings’ in the left menu
- Enter your VAT number under tax information in ‘Tax ID’
- Click ‘Save’ to update the information
Final Thoughts: Keep VAT Simple to Stay on Top
VAT on Facebook advertising looks stressful for several businesses. However, with the right knowledge, you will know what to do to remain compliant. For Facebook ads, you actually don’t pay any VAT through the reverse charge mechanism. This means you will report the 20% VAT to HMRC and claim the exact 20% VAT in your VAT return. On the other hand, if your business offers VAT-exempt services, then you will have to pay 20% VAT and will not be able to apply for the reverse charge rule.
Finding it difficult to understand, Is there VAT on Facebook advertising? Lanop Business and Tax Advisors is here to make things easy for you, simplifying VAT compliance on Facebook Ads for UK businesses.
