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, 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. I, of course, take no responsibility if you choose to do as I have done.
The advice that I had been given from more than one accountant was that we should imagine VAT on top of the Adsense income and place that number into both boxes 2 and 4 (so as to declare it but cancel itself out). So if I earned £100 in Adsense earnings I would add £20 to box 2 and 4, and place £100 in box 6 (sales). This made box 4 too large (as box 7 (purchases) must be at least 5 times box 4) so I presumed I should add £100 to box 7 also. I think the HMRC VAT guy was impressed at how wrong I had managed to get it.
All you need do for Google Adsense is (assuming you have Google’s VAT number on your “statement of earnings” from them) is to put the earnings into box 6 (sales), and that is it. You don’t need to add 20% to box 2 and 4, and it isn’t a purchase so it has nothing to do with box 7. The reason we can do this is because Google Adsense earnings are a zero-vat sale. If you have Google’s VAT number you can zero-vat advertising revenue from them because the place of supply for advertising is based on the client (Google, so Ireland), so Google Ireland sort out the VAT at their end, not you.
In fact, what I had tried to do originally (20% into box 2 + 4) was actually what Google do when buying advertising from me! Or, if I purchase advertising from Google (Adwords) then I would need to do the box 2 and 4 malarkey (I have this to work out in my next VAT return, it should be 20% into box 2 & 4, and the whole amount in box 7 as it is a purchase, but I’ll call them up and ask HMRC as they are the people who will accept or reject the VAT return!). I hope that clears things up!

