Online advertising is almost subsuming all other types of marketing and promotions these days. One of the two most popular platforms is Google’s Pay Per Click (PPC) system called “AdWords”.

AdWords are the adverts that you see at the top of Google search results with a little “Ad” sign next time them. A company pays every time someone clicks on their advert. PPC is a way of getting your company to the top of search results without having to do search engine optimisation.

If your company pays for PPC advertising or if you have considered purchasing this service, you know how quickly those cost of using it adds up over the weeks and months if you don’t set daily spending limits on your participation.

In this article, we guide you through the process of reclaiming VAT on Google AdWords

Google AdWords VAT Reclaim – What is the Reverse Charge System?

Because PPC is an electronic advertising service, the place of supply for VAT is the country you’re doing business from – in our case, the United Kingdom. Businesses which are VAT registered in the UK need to account for their AdWords-related VAT using the “Reverse Charge System”.

The Reverse Charge System only applies to VAT registered businesses in the UK that want to reclaim VAT for services – the system is not applicable to trading in goods.

Google AdWords VAT Reclaim – How can I use the Reverse Charge System?

Your Reverse Charge is the amount of VAT you paid or would have paid if you had bought the service from a company based in the UK.

This figure is then combined with the output VAT figure in Box 1 on your VAT return. You then need to add this same figure to your input VAT figure in Box 4 and add the same figure to your net purchases in Box 7 on your VAT return.

All that’s left to do is add your net invoice value (without VAT) to your net sales in Box 6 on your VAT return. By following these instructions, the Reverse Charge System cancels out your VAT figure so you don’t need to pay HMRC anything or reclaim anything back.

Google AdWords VAT Reclaim – How could the Reverse Charge System affect me? 

However, Google isn’t based in the UK. Your AdWords invoice will contain a statement saying “Google Ireland Ltd” because the search engine giant is based in the Republic of Ireland. But what does this mean for you?

Let’s guide you through an example to help you understand. If you spend £120 on AdWords advertising and we pretend that Google was based in the UK, the standard rate of VAT (20%) would apply. Your Reverse Charge would be £24, or £120 x 20%.

Google AdWords VAT Reclaim – Important considerations

If you haven’t given Google your VAT registration number, they will invoice your PPC service with Irish VAT added. To avoid being charged Irish VAT, you should tell Google your VAT registration number using the Settings panel on your AdWords account.

If your business uses the VAT Flat Rate Scheme, then the Reverse Charge System is slightly different for you. Instead of following the previous instructions, you should add your VAT amount to your output VAT in Box 1 and to your input VAT in box 4. When you use the VAT Flat Rate Scheme, you don’t need to fill in boxes 6 or 7.

If your business isn’t VAT registered, any funds spent on PPC count towards your sales in relation to the VAT threshold. This is because the Reverse Charge System classifies invoices from Google as if you raised the money yourself from a sale. If you are close to the threshold or expect to exceed it soon, it probably makes sense to register for VAT.

Google AdWords VAT Reclaim – Clear as mud?

Claiming input VAT back on AdWords is far more labyrinthine than it needs to be. Completing accurate VAT is complicated enough without the added difficulty of reclaiming VAT on Google PPC.

Contact Burton Beavan for help with AdWords and VAT on 01606 333 900 or email hello@burtonbeavan.co.uk