Who might this affect?
- Suppliers or publishers of digital books and magazines.
- Charities and membership organisations that supply printed matter (magazines, journals, periodicals, newsletters etc.) to their members or supporters, but would prefer to do so digitally for environmental and economic reasons.
- Organisations already providing members or supporters with electronic publications.
- Organisations that currently apply the reverse charge to e-publications from overseas suppliers.
When the UK’s zero rate for newspapers was originally introduced, newspapers were supplied as printed publications and no one foresaw that that they would be available on Kindles tablets and mobile phones in future. HMRC’s position is that zero-rating under the legislative heading ‘Books etc.’ (referring to books, booklets, brochures, pamphlets, leaflets, newspapers, journals and periodicals) is limited to physically supplied printed goods as opposed to e-books and e-newspapers, which are supplies of electronically delivered services and are therefore standard-rated.
HMRC’s view was upheld by the First Tier Tribunal (FTT) in News Corp’s appeal. Although it found that there was no material difference between the content of the print and digital editions (despite some features only being available online) it ruled that the zero rate applied only to goods.
The Upper Tribunal (UT) however recently overturned the FTT decision and ruled that the digital editions of the Times and other News Corp newspapers should be zero-rated. The UT concluded that the VAT Act 1994 should be interpreted in a way that maintained its relevance (the “always speaking” principle). Applying the zero rate to digital newspapers did not extend the scope of the relief (which would not be allowed under EU rules), nor did it offend the rule that the relief should be construed strictly. Digital newspapers fell within the “genus” of items that were intended to be included in the zero rate, and the digital editions of the newspapers (and by extension e-books) should also be zero-rated.
What should you do?
It is expected that HMRC will appeal against this decision and the matter is unlikely to be concluded in the near future. Due to the four year statutory limit on adjusting VAT claims and the length of time that may elapse if HMRC appeal, if you're affected by this decision, you should consider making protective claims to HMRC going back four years in order to protect any over-paid VAT going ‘out of time’.
Where an organisation has purchased e-publications, then it will be necessary to make representation to the supplier, particularly where the VAT charged has represented a cost to the charity.