Google to pass on 2% tax to advertisers
Last week, Google notified advertisers of a new digital services tax coming into force in the UK on the 1st of November. The new tax will impact advertisers, developers and third-party sellers.
What will I be taxed?
From the 1st of November, advertisers on Google will be charged an additional 2%. The tax is a 2% fee that is a separate line item on advertisers invoices, taxing you 2% of what you’ve spent on the Google Ads and YouTube platform. The new fee will be subject to any taxes, such as sales tax, VAT, GST, or QST.
If your audience is outside of the UK, you won’t be eligible for the 2% tax. However other countries such as Austria and Turkey also have their own fees.
Why has it been introduced and which companies are affected?
The tax has been introduced by the UK’s DST. The aim is to collect revenues from digital companies with £25 million in UK revenue and at least £500 million worldwide.
Some businesses are absorbing the costs, and others such as Google are pushing this cost on. Amazon recently announced that it’s passing on the costs to their marketplace sellers, unlike eBay who are absorbing the tax. Apple is also changing how it pays developer fees on the UK App Store. We are expecting an announcement from Facebook and Microsoft soon.
How does this impact advertisers?
It’s effectively more money you will have to pay for the privilege of using Google’s ad platform to reach your audience. Therefore, you’ll either need to deduct 2% from your click budget or allocate an additional 2% on click budgets to cover the new tax.
There are two simple ways of dealing with the introduction of DST – reduce ad spend, or adjust budget allocation to compensate. Each come with their own considerations.
As these fees are being added on top of your usual monthly account budget, it would be worth reviewing your budget. If you will need to reduce your budget by 2%, evaluate how this may impact your results.
It will also impact your campaign reporting. From November, start factoring in the 2% tax into your CPAs. Try this now in order to get a better understanding of how this will impact you from November. It may also help you to decide whether to reduce your monthly budget or to increase.