Google Adwords is a common and effective form of advertising for any business that has a website. However, it is important to remember that the budget spent on Adwords affects your VAT returns which must be completed accurately or you may end up with a fine from HMRC.

Your Adwords invoices will be sent by Google Ireland Ltd where the company is based. As the system is electronic however, the rate of VAT will be determined by the location of your business i.e. UK. If you are VAT registered then you must account for VAT using the reverse charge system.

Reverse Charge VAT System: How does it work?

If you are based in the UK, you are covered under the Reverse Charge VAT rules which means that you act as both the customer and supplier of the service. This allows you to charge VAT on your tax return, but then reclaim it on the same form; effectively giving a net of zero as long as you are not exempt of partially exempt from VAT.

For example, if you had £100 Google Adwords invoice, you would complete your VAT return as follows:
1) Work out the VAT which is 20% in the UK. This is £20 on £100 invoice
2) Add £20 VAT to the output VAT figure (VAT Return Box 1)
3) Add £20 to the input VAT figure (VAT Return Box 4)
4) Add £100 net invoice value to your net sales (VAT Return Box 6)
5) Add £100 net invoice value to your net purchases (VAT Return Box 7)

Ultimately then, this means that you have added £20 VAT to your total sales, but then reclaimed it on your purchases, leaving VAT payable unchanged.

Google VAT on Adwords Tips

Inform Google of your VAT number

It is imperative that you inform Google of your VAT number if you are VAT registered; if you do not, your invoice will be issued with Irish VAT. Google have made it very easy to set up the correct VAT number however; simply log into your Google Adwords account, select the Billing tab and click on Billing Profile. This will then allow you to enter or edit your UK VAT registration number. This means that Google will issue your invoices with no VAT added which you can document using the reverse charge system detailed above.

VAT Turnover Threshold is affected by Adwords Spend

Please be aware that if you are not VAT registered, the amount you spend on Adwords is counted as part of your sales when considering how close you are to hitting the VAT threshold.