OKO work with AdSense publishers from all over the world, but have a particularly strong customer base in Europe including here 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 being paying VAT on those earnings.
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 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 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 really good question and I’ve seen a couple of Accountants try to answer this and come to the conclusion “it shouldn’t”. It’s complex, but my understanding is that as ADWORDS in Europe operated by Google Ireland the actual ad sales happen there. That is where an end use actually ends up paying VAT and therefore where the VAT should end up.
Do UK publishers need to pay VAT on AdSense earnings?
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 request 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.
How about other EU countries
My understanding is that the same rules apply to publishers in other EU countries outside of Ireland as they do in the UK. Please do though check with a local expert.
Mat has been supporting content creators on the web since 1996. As Co-founder of OKO Digital, Mat became the first person in the UK qualified to AdSense partner status and repeated this first with Google Certified Publishing Partner programme.
So if your on the flat rate scheme and you earned £100 Adsense revenue and your flat rate VAT rate was 10% you would still have to pay HMRC £10 but if you weren’t on the flat rate scheme you would of paid the HMRC £0?
I’ve never been on flat rate, but yes: That is exactly my understanding of it.
Hi I work full time and currently earning a salary of £18k a year which I am taxed on. I also am currently making around £600 a month from adsense for 2 months. Would I need to pay any tax on my adsense?
Oh and im 20 years old but also a student
From the “£” I’ll assume that you are in the UK.
My take (not a tax consultant) is that the £600 will be taxable. In your boots I’d book an appointment with a local accountant and have a chat. They’ll probably get you to register that as self employed earnings and submit a tax return annually. They’ll probably charge about £100 a year to do it for you.
Good news though – it means you can claim tax deductible expenses against it!