The internet has opened up a cornucopia of opportunities for businesses across the world. In terms of marketing, it has been nothing short of a revolution, transforming the landscape beyond recognition. It now appears that the possibilities are endless and reaching millions of clients through advertising is effortless.
However, the reality is slightly more complicated. Google Ads is the PPC system that’s used the most by businesses online and has by far the farthest reach. It allows you to display ads in Google search results for a significant boost in visibility. It’s the perfect example of the opportunities marketing now has thanks to the Internet. Where things get more muddled is the accounting side of things.
We’re here to make things a bit more understandable for you. Knowing how the VAT reclaim process works for Google Ads can help you handle the costs of the procedure and keep all things in order so that your ads can keep running and attracting clients.
The Reverse Charge System
Let’s say you’re a UK business that wants to buy ads using Google Ads. You’ll be billed from Dublin, as that’s where the nearest Google headquarters are, which would normally put the transaction outside the UK’s standard VAT jurisdiction. You still won’t be charged using the Irish system, however. Instead, the Google Ads VAT returns to the HMRC – this is called the Reverse Charge system. It’s a system put in place by the EU in order to manage the place of supply for specific services purchased on an international level. So, in essence, thanks to the Reverse Charge system you are still under UK tax jurisdiction for all your Google Ads purchases.
How to Use It to Your Advantage
The main takeaway from this system is that you pay the exact amount of VAT that you would have paid if you were simply purchasing a service from a UK-based company. In order to properly calculate the tax, you need to fill out the VAT figure in Box 1 on your VAT return with your initial VAT figure combined with the output VAT figure. What’s left then is to add this same figure to the input VAT figure found in Box 4, and then adding that same figure to the net purchases that can be found in Box 7 of your tax return. Then you have to add your net invoice value without VAT to the net sales in Box 6. If you’ve filled out everything correctly, the Reverse Charge system comes into play and your VAT figure is cancelled out. You don’t pay HMRC anything or have to reclaim anything.
How It Impacts You
There are still several issues to consider in order to make sure that everything is handled correctly. Since Google is based in Ireland, and not the UK, you will receive the statement “Google Ireland Ltd” on your Google Ads invoice, which means that your PPC service will be provided with the Irish VAT added. Still, if you are not in fact based in Ireland, you will want to avoid that. Luckily, you can easily let Google know that you are based in the UK through the Settings panel on your Google Ads account.
If your business is exempt from VAT in part or in full, you may discover that the Reverse Charge system is more of a hindrance than a boon. It is very likely that the value of the ads you purchase via Google Ads will exceed the VAT threshold, which will force you to register for VAT. While it’s not impossible to handle Google Ads while being exempted from VAT, it definitely takes much more care and preparation, so we don’t recommend doing it on your own.
No matter how you look at it, the Google Ads VAT reclaim process is quite complicated. While you can attempt to handle it on your own, you can minimise the risks and stress involved by trusting an expert. One expert we recommend is Neadoo Digital – with their years in PPC marketing, they will know exactly how to handle your VAT reclaim process for Google Ads.