VAT on Google Adwords

VAT on Google AdWords

Lets face it, if you want to guarantee your business is found on the internet you need Google AdWords in your life.  So you’ve set up your Google AdWords account and you receive your first invoice from them. Now, how do you account for it?

For the whole of Europe Google provides this service from the Republic of Ireland and because its not part of the UK you have to apply EU VAT rules.

How you treat the invoice is dependant on whether or not your business is VAT registered:

Your business is not VAT registered

If you business is not registered for VAT then VAT will be charged at the Irish rate and cannot be reclaimed.

Your business is VAT registered

If your business is VAT registered you need to provide Google with your VAT number when you set up your AdWords account and this can be done from account settings.

When you receive your invoice you will then notice that no VAT is charged on the invoice. To account for VAT under the EU rules you then have to apply the reverse charge system.  This is where you apply  VAT on both the sale and the purchase to the invoice at the UK rate.  I must admit this sounds a bit confusing so let me demonstrate this with an example:


Say for example you receive an invoice of £100 for Google Adwords:

1) The UK vat on £100 is £20. On the VAT return you then need to include the £20 in both box 1 (sales) and box 4 (purchases).

2) The net effect of this is nil with zero being included in box 5.

3) You will also need to include the net amount of £100 in both box 6 and box 7 of the return.

Accounting for this in Xero

Xero have made it super easy to account for the reverse charge. All you have to do is enter the invoice like normal and in the tax rate drop down box select reverse charge expenses.

VAT on Google AdWords

If you are have any questions on this, give us a call!

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