In March 2020 HM Revenue & Customs announced a new 2% digital services tax to levy against businesses deriving value from search engines, online marketplaces, and social media.
Coming into effect on the 1st April 2020, Google, closely followed by Amazon (Facebook are yet to comment but expect them to join), confirmed that the new tax would be passed to its advertisers and that the additional charges would come into effect from November 2020.
Well that time is almost upon us. So what does this new digital services tax mean for your campaigns on Google Ads?
From the 1st November your invoices from Google will contain a new line item for the new tax. The new tax will be in addition to your monthly budget, not deducted from any budget already input into Google Ads, or any prepaid funds.
The UK isn’t the only country affected by this new change. Advertisers running ads in Austria and Turkey face an increased tax rate of 5%.
So if you advertise in the UK and spend £5000 on clicks a month you’ll be potentially looking at an additional tax cost of £100 or £250 in the aforementioned Austria and Turkey.
It should also be noted that these charges won’t be reflected in Google Ads, meaning average CPC (cost per click) and cost per conversion data will no longer be entirely accurate.
What do we think about this
A 2% tax on Google’s £5.7 billion ad revenue from 2019 would equate to £122 million. A grand night out for us, but peanuts to Google comparatively.
Ultimately Google has the right to pass this tax onto its advertisers. It’s happening, and contrary to what we’ve heard, it’s not going away anytime soon. So we need to adjust accordingly.
Our recommendation would be to avoid absorbing this tax into your existing click spend/management budget. Instead, look for ways to tighten your spending through campaign/adgroup/keyword review.
From our experience accounts often needlessly waste spend, so now’s the time to consider getting an audit…