Reverse Charge VAT: How It Works With Google Ads

Reverse Charge VAT & Google ADS
AdWords are a pay-per-click advertising service that is offered by Google. It is an incredibly powerful tool for any business who wants to grow and, if done right, can transform your business.

Buying Google AdWords

AdWords are a pay-per-click advertising service that is offered by Google. It is an incredibly powerful tool for any business who wants to grow and, if done right, can transform your business.

Unsurprisingly, Google AdWords allows advertisers such as you to reach people through the Google Search Network and through the Google Display Network. Combined, these allow your business to be found by people who are searching for words associated with your business, and banner ads to be displayed on websites you think your target audience may visit.

As an e-commerce business, you can use Google’s Shopping ads to showcase your products and prices and allow customers to click straight through to your product’s landing page. However, if selling a commodity item, this can be difficult as your competitor’s prices will also show right next to your advert – allowing consumers to compare prices without even clicking on your website.

While many people focus on Google headquarters in America, it is important to know that when a UK business buys AdWords, they receive an invoice from Google’s headquarters, which is located in Dublin, Ireland. As Dublin is outside of the United Kingdom’s VAT jurisdiction, EU regulations come into effect.

What is Reverse Charge VAT?

When a business within the EU invoices another business within the EU, VAT is not necessary. Instead, a reverse charge will be used, and zero VAT will be shown. This will be referenced under “Article 196, Council Directive 2006/112/EC. “

Reverse Charge places the responsibility for recording the VAT transaction on the buyer of the goods or service. Therefore, in the case of Google AdWords, you, as the buyer, will be responsible for recording the VAT transaction.

When you receive an invoice that contains a reverse charge, you must act as if you have supplied and purchased the goods/services and, therefore, record the input and output tax. This means an invoice that charges your business VAT at 20% for the Google AdWords purchased must be created. Whilst the responsibility rests with you, this does not alter the amount of VAT you are liable for.

Reverse Charge VAT Google AdWords

As a small business, reverse charge only becomes an issue when assessing your VATable turnover. As you will be responsible for recording the input and output tax, and you will have created an invoice that charges your business for Google AdWords, the amount that you choose to spend on Google AdWords will increase your VATable turnover. As a result, you need to add this spending to your VATable turnover to assess accurately whether you have breached the VAT threshold. 

The current VAT threshold is £85,000. If you breach this total or know that you will breach this total, then you must register for VAT. You should remember this when deciding on your Google AdWords spending, as this could inadvertently push you into registering for VAT.

Impact on your Business

If your business revenue is £70,000 per year and you opt to spend £20,000 on Google AdWords, it will be important to understand whether a reverse charge invoice has been submitted. If the invoice has zero VAT and there is a reference to Article 196, Council Directive 2006/11/2/EC, you know that the Google AdWords invoice will impact on your VATable turnover.

In this instance, you would breach the threshold and need to charge 20% on sales. You will, therefore, need to decide between increasing your costs to your customers or taking a hit to your profits.

HMRC will penalise you if you breach the £85,000 threshold and do not register for VAT.

Taking Control of Your Finances

Whatever stage your business is at, you must make sure you understand the rules around tax, including VAT, so that you can avoid being penalised further down the line. If you do not have a business background, then the financial and tax world can seem very daunting. If you have just set up your first ecommerce business or your business has started to grow, you may need to follow different rules.

It is much easier to find out everything you need to know before you take the next steps so that you keep all the necessary records and submit invoices, claims, or returns in line with the rules and regulations.

Recommended articles:

Free 30 Minute Consultation

Why not grab a Free 30 Minute Consultation with one of our Accountants, they can answer any questions you have about your e-commerce or marketplace business, guide you on tax efficiency and see if we can help you.

You Have Nothing to Lose & A Lot to Gain

Free 30 Minute Consultation

Why not grab a Free 30 Minute Consultation with an Accountant, they can answer any questions you have about your e-commerce or marketplace business, guide you on tax efficiency and see if we can help you.

You Have Nothing to Lose & A Lot to Gain
Share the Post:

Recent Posts

Book your Free Consultation or Quote for services

Want to speak to an e-commerce accountant for free, get 30 minutes of expert advice on accounting for your e-commerce business.
Not have any questions? If you just want a quote then book a meeting, we can discuss what you need and give you a quote.

Get more information on becoming an affiliate.

Please get in touch

Wait! Before you go...

We don’t want you to miss out on your FREE consultation with one of our team.
Ask any accounting questions you might have. We’re usually about to give you some quick fixes or answer those questions that have been bugging you.
 
We’ve even advised some Amazon sellers on how to save Thousands of pounds on their Amazon fees.