Proposed changes to advertising rules

HMRC is undertaking a consultation that could see the use and enjoyment rules extend to advertising. What do you need to know?


Extension. In the 2015 Budget the government announced that it would extend the use and enjoyment rules to insurance and repairs of vehicles as part of its push against avoidance. It has now announced a consultation to extend the provisions toadvertising services.


Exempt. Businesses in insurance and betting and gaming incur VAT on their advertisingservices which is not recoverable, as they only make exempt supplies. This effectively adds 20% to their advertising costs. To get around this many set up offshore businesses outside the EU so that under the existing place of supply rules they would avoid being charged VAT.

Under the existing rules, the place of supply of advertising services is where the customer resides. If the customer is outside the EU, no VAT is chargeable and the customer does not have to account for it via a reverse charge either – so the business avoids a VAT charge. This has meant large VAT savings for exempt businesses and significant VAT losses for the exchequer.


Avoidance. EU laws permit member states to apply use and enjoyment provisions toprevent double taxation, non-taxation or distortion of competition for a range of services, including advertising where the recipient is based outside the EU. This provision moves the place of supply to where the services are effectively used and enjoyed.


Applying. A VAT use and enjoyment provision would move the place of supply of theadvertising services to the UK for VAT purposes – so the provider would have tocharge VAT. As a result, the non-EU based entity would incur VAT that it could not recover because it makes exempt supplies within the UK. This would eliminate any advantage gained by routing the advertising services offshore.


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