Google Adsense and VAT
A slight departure to the normal techie topics, but still related I think especially if you make your living from advertising on your websites!
If you happen to be UK VAT registered and make Google Adsense earnings you may be a bit confused as how one goes about reporting the numbers on your VAT return. Indeed, a cursory look around the internet shows advice from people who identify themselves as accountants and yet still get it wrong! There's all this business about the EU reverse charge mechanism, the place of supply, and it can all be a bit confusing. Actually, it is really quite simple! I had to have a rather long chat with HMRC's VAT department to understand what I was doing wrong, so what follows comes straight from them, together with information on their website about how to fill in the form box by box. I, of course, take no responsibility if you choose to do as I have done, I'm not an accountant and you should speak to one if you need accounting advice!
Adsense income is really simple to handle on a VAT return form. All you have to do is put the amount of Adsense income for the period you're reporting into box 6 ...and that's it! Easy. Why is it so easy? Because Google use the reverse charge mechanism and account for VAT at their end, so you don't need to worry about it. Well that's great!
But what if you buy advertising from Google? Facebook? Well this is where it gets a bit complicated. You see, for the purchase and sales of advertising, the place-of-supply is where the customer is - that's where the VAT needs to be accounted for, which is great for Adsense since it means that Google have to deal with it, but not so great for accounting for Adwords because you need to do it! Here's what you do to account for purchasing advertising from other EU countries (where the supplies are made ex-VAT), ie Adwords and Facebook Advertising:
The service you've bought (advertising) has come to you ex-VAT and you need to calculate what it would be as if you'd bought the advertising from a UK company. Right now that means 20%. So, calculate the total of all the advertising you've bought from Google and Facebook, work out what the VAT would have been (20% of the total) and add that VAT portion (the 20%) to both box 1 AND box 4. Putting it in both boxes means that they HMRC can see the amounts involved, but it doesn't affect your VAT payment/repayment.
Then add the total you've spent on advertising at Adwords and Facebook Advertising to both box 6 AND 7. Again this allows HMRC to see the amounts involved and do various calculations on the various components of the amounts in each box. Personally I think it could have been a lot easier with more boxes, but I guess they wanted to keep the box-count down.
EC Sales list
The other thing often overlooked by website owners that make income from Google Adsense is that you must provide a quarterly EC Sales List to HMRC - the form is for income that you've received from other EU countries, in our case, advertising income. If you get income direct from non-EU companies (I get lots of requests from US companies), then you don't have to report it here - this is just for EU companies like Google (Ireland) Ltd. It's actually a doddle to fill in, especially if your income is just from one source, ie Google Adsense. All you have to do on the form is tot up how much income you've gotten from Google Adsense in the quarter you're reporting. Then pop that onto a single row of the EC Sales list. So first select IE for Ireland, then pop in the rest of their VAT number (which you'll find on the Payement Receipt from them - though if they give you the wrong one HMRC will hold you liable, so make sure their VAT number is right!), pop in the amount and in the final pull-down select 3-Services. And that's it. I tend to do my VAT return and EC Sales list at the same time, but note that the EC Sales list deadline is much tighter.
- internet advertising 1
- Google Adsense 1
- HMRC 1
- Intra-EU sales 1
- place of supply 1
- VAT 1
- EC Sales List 1
- Google Adwords 1
- Facebook Advertising 1
- Reverse Charge 1
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