Who: Committee of Advertising Practice (“CAP”) and Broadcast Committee of Advertising Practice (“BCAP”)
When: 20 February 2013
Law stated as at: 25 February 2013
CAP and BCAP, who respectively write the Codes for non-broadcast and broadcast advertising which are administered by the Advertising Standards Authority, have announced changes to the rules on the use of VAT exclusive price claims.
The amended rules, which took effect on the day of the announcement, 20 February 2013, potentially provide those who advertise to business consumers with the chance to make VAT exclusive price claims more widely, provided the claims are clearly addressed to those who pay no VAT or can recover it.
In March 2012, BCAP launched a consultation on the rules surrounding comparative advertising and pricing, partly due to concerns that the existing provisions were too restrictive. Under the old rules, advertisers could only advertise VAT exclusive prices if they were to be seen only by an audience of business consumers who paid no VAT.
Given the difficulty in ensuring that the audience was limited accordingly, it was thought that this may have been putting off some businesses from making price claims in advertising. In BCAP’s view, in line with the BIS Pricing Practices Guide, the rule should instead focus on the target audience of the price claim, rather than the full audience of the advert.
BCAP Consultation responses and conclusion
The majority of responses to the consultation supported a change. While it did receive a substantive response opposing change on the basis that some advertisers may give undue prominence to the lower VAT exclusive price even where the audience is mostly made up of consumers who would have to pay VAT, BCAP decided that if price claims were clearly addressed to a business audience, it was unlikely such adverts would be misleading.
BCAP therefore decided to amend rule 3.19 to allow advertisers to make VAT-exclusive pricing claims, provided the claims are clearly addressed to those that pay no VAT or can recover it. Such VAT exclusive prices must however, be accompanied by a prominent statement of the amount or rate of VAT payable.
Equivalent rule amendment for CAP Code
The CAP Code was amended last year following the extension of CAP’s remit to cover adverts on company websites and social networking sites so that those companies selling to businesses could advertise product prices on their websites exclusive of VAT. The wording of rule 3.18 has however been further amended so it is the same as the new BCAP rule to ensure consistency across all media.
Why this matters:
The amended rules are good news for business to business advertising. While businesses must be careful to address their adverts carefully and include the amount or rate of VAT payable, the change will potentially give advertisers more choice in advertising channels and consequently more opportunity to reach target customers.