Is Facebook Charging you VAT after Brexit?
We have had several customers come to us and ask why Facebook has charged VAT (20%) on their advertising spend.
Nothing has changed on Facebook’s policy page. That means when Facebook bill you £1000 for your ads, they will add 20% onto your bill. If you are not VAT registered, then you will need to pay this and therefore your costs have increased by 20%.
So why have they done this? We believe Facebook has tightened up their VAT policy for reverse charge. Therefore only ensuring that B2B transactions are subject to reverse charge. In a simplified summary, reverse charge VAT is effectively 0%.
UPDATE 5th February 2021 : We have some customers reporting that by changing to their limited company name rather than their personal name Facebook remove the VAT on new ad bills. However, this may also just have been a blip from Facebook. Email us if you are still getting charged.
What is reverse charge? What about Brexit?
Reverse Charge VAT can be a tough concept. In a nutshell, when a business in an EU country invoices another in an EU country they don’t have to charge the EU country VAT and instead use reverse charge and show zero VAT. They will reference “Article 196, Council Directive 2006/112/EC.” On their invoice or website and it is at this point the VAT implications become your problem.
Since Brexit, the reverse charge is still in effect for the UK. Therefore there should be no change post Bbrexit. This is why this move from Facebook is confusing.
When you receive a reverse charge invoice, you, the purchaser, need to treat the service as if you both supplied and purchased the service and account for the input and output tax. In effect, this doesn’t decrease or increase your VAT liability.
Facebook are now charging customers who do not have a UK VAT number with UK VAT. This is because they want to ensure they only use reverse charge on confirmed businesses. This is a cautious approach and we are yet to see Google or Microsoft with the same policy.
Should I register For VAT?
If Your advertising spend has increased by 20% at the of January you may be unprofitable. This, combined with the new rule on overseas shipments to the UK can really change your VAT requirements. See this article here. This could mean that registering for VAT is now sensible.
Many small businesses register for VAT below £85,000 for many reasons. However, this is a big decision and can have an enormous impact on your business if not properly thought through.
The foremost reasons to voluntarily register for VAT are:
- Reclaiming VAT. Although you will have to charge VAT on your goods and services once you are registered (known as output tax), you will also be able to reclaim VAT that you are charged by other businesses. This is known as input tax. At the start of a business when you have a lot of outgoings this may help you, for example, if you sold £2000 of goods and charged £400 of VAT but spent £10,000 on various start up items and can reclaim £2000, HMRC would then send you £1600. (also see if there is VAT on stripe or paypal fees)
- Pricing – You need to think about your pricing strategy with VAT or without, once you hit £85,000 and you haven’t already incorporated VAT in the pricing strategy then you will be hit with increased prices. If you factor it in or register straight away you need not worry about this as its clear from the start.
- Building impressions. Firms which need reputation, can register for VAT to appear larger than they are. Clients will know that there is a threshold of £85,000 so if your not registered they will know your turnover is below this. To avoid this you can register for VAT as a way of increasing your standing among competition, and in the eyes of clients. This makes your small business seem like a bigger business.