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OKO works with Google AdSense publishers from all over the world, but has a particularly strong customer base in Europe, including in the UK. That means that we do occasionally receive a slightly panicky phone call from website owners who’ve earned significant AdSense revenue and are suddenly aware that they have not been paying value-added tax (“VAT”) on those earnings.
Google AdSense does have a slightly unusual VAT set-up. The best advice is to talk to a qualified accountant about the situation, mentioning that AdSense uses the VAT Reverse Charge (or “tax-shift”) mechanism.
Although I’m not an accountant, I have been receiving AdSense payments to a VAT-registered business for over a decade. I have, then, been through these issues myself (including with several accountants and two VAT inspectors) and can share my own understanding.
What is the VAT reverse charge mechanism?
The reverse charge mechanism is a way of handling VAT on certain B2B services supplied cross-border. The aim of the system seems to be to ensure that VAT ends up being paid into the correct country’s coffers when one business buys services from a business in another EU member state, but those services are delivered in the customer’s country rather than the suppliers.
Why do reverse VAT charges apply to AdSense?
This is a very good question — and some accountants may answer that question with “it shouldn’t.” It’s complex, but the general takeaway is that because AdWords in Europe are operated via Google Ireland, the sales are said to have “happened” there. That’s where the end user actually ends up paying VAT, and therefore where VAT revenues should end up.
Do UK publishers need to pay VAT on AdSense earnings?
Yes, it’s possible to be taxed for Google AdSense in the UK. UK-based publishers who are VAT-registered do not need to pay VAT on their AdSense revenue — the VAT has been accounted for by Google already. It should, however, be recorded as 0% VAT on the VAT return.
This revenue does, though, still count towards your VAT threshold, and could also cause you to pay more VAT if you are on the flat-rate VAT scheme.
As the “sale” is to an EC Country (ie, to Google in Ireland) it should also appear on an EC Sales list. If you submit your return online you can request that “EC Sales List” is added as a service on your account. I don’t believe that the EC Sales list is a requirement unless HMRC requests it, but it could be worth offering to do this. Without submitting one quarterly, your return can look suspicious and could contribute to you getting an inspection
Do AdSense publishers in Ireland need to pay VAT?
Publishers in Ireland who are registered for VAT need to charge Google Ireland for the appropriate VAT on the revenue they generate. There is more about this in the AdSense help pages, including how to raise a VAT invoice to Google Ireland for those that need to.
AdSense can be a nuanced topic with a lot of ground to cover – for some of our other discussions on the service, check out our blog.
