Google Ads advertising services are supplied by their European office, which is based in the Republic of Ireland. Although both countries charge VAT, the rules are not the same – we are unable to claim back VAT charged here in the UK in the normal way. These transactions come under the EU rules for VAT.
A common question Google Ads advertisers ask is how does VAT work for Google Ads? This can be broken down into two categories:
If you are not registered for VAT
You need to make sure you set up a business account, so you are not charged the 21% VAT.
When looking at your turnover to see if you need to register for VAT or not, you will need to include the amount of the Google services for the same period within the total. Therefore this could tip you over the threshold to register for VAT.
If you are registered for VAT
You need to use the reverse-charging system, which is used for simplifying VAT.
You will need to set up your account as a business account as above, and enter your VAT number as part of the set up process. Google will invoice you without charging the 21% - they will note the reverse charge system is being used on their invoice.
With most accounting software offerings you just select the ‘reverse charge’ option for VAT when uploading the purchase invoice and the software will account for the VAT as required. It will ensure the VAT is included in the correct areas and shown on the return as required.
The accounting software will add VAT at 20% of the purchase amount to box 1 (20% being the UK Standard VAT rate), and the same amount again in box 4. This is therefore including the VAT in both the sales and purchases figure – and effectively cancel each other out.
The software will also include the invoice amount from Google in both boxes 6 and 7 – the net Sales and net Purchases figures.
If you are using the Flat Rate Scheme for VAT accounting then you do not need to include this on your return at all – treat as a normal invoice and put through your accounts as per the invoice value as you would for any other purchase invoice/receipt.
If your business only makes exempt supplies, and therefore you can’t claim back any purchase VAT then the VAT only needs to be included in box 1, and the net amount in boxes 6 and 7. If using software you may need to make a manual adjustment for this.
Written by CH Accountancy & Bookkeeping Ltd, assisting small businesses with their accounting requirements – giving you the tools you need to keep everything as simple and stress free as possible.