9 Mar 2009 by Chris     1 Comment     Posted under: Gadgetry and IT

VAT, the Flat Rate scheme, AdWords, AdSense and confusion

I’ve just spent far too long (as is always the way) trying to find out what I should be doing when it comes to accounting for VAT with my AdWords, Amazon affiliate marketing and AdSense activity. The confusion stems from two things: firstly, these services are supplied from other EU countries (with different VAT rates) or from outside the EU; and secondly, Google usually charges most UK advertisers Irish-rate VAT on their AdWords and apparently, if you’re a business (which you almost certainly are, if you’re using AdWords), they shouldn’t be charging you that VAT. All this leads to everyone I’ve spoken to not understanding how much money they should (or shouldn’t) have been paid to or from Google and HM Revenue and Customs. Spend an hour Googling various small business forums, and you’ll find totally contradictory advice, so it gets even worse.

So, to save you the effort I’ve been going through, here’s the best set of advice I’ve found on affiliate marketing and VAT. Huge respect to the authors, an affiliate marketing specialist accountancy service in Yorkshire, who appear to know a lot more than your average high street accountant.

From this document on Affiliate Marketing for those on Flat-Rate VAT, I’ve understood therefore that if you’re on flat-rate VAT, the following applies:

1. Amazon affiliate payments come from another EU country (Luxembourg) but are “out of the scope of UK VAT” and therefore not included in your flat rate turnover;
2. AdSense payments come from outside the EU (the USA) and are also out of the scope of UK VAT and therefore not included in your flat rate turnover;
3. AdWords expenditure is to another EU country (Ireland) but does not have to be included in your flat rate turnover (Section 6.4 of HMRC leaflet 733, updated March 2007).

So in summary, that means nothing has to go on your VAT return regarding Amazon affiliate income, AdSense income or AdWords expenditure. Their only relevance to VAT is that they might lift you over the threshold where you have to be registered for VAT, but if you’re already registered (and on the flat rate scheme), that’s not a factor.

Note this will not apply to you if you’re not registered for VAT, or if you are registered but aren’t on the flat rate scheme. And as ever, check with your own accountant or go through this with the National VAT Advice Service on 0845 010 9000 – if you call, ask for a reference number at the start of the call and ask that the advice they give you is recorded with your account.

Got anything to say? Go ahead and leave a comment!