The publisher of a newspapers, such as The Times, The Sunday Times, The Sun and The Sun on Sunday, has won a legal appeal that could see income in respect of the digital versions of its newspapers treated as being ‘Zero Rated’.
This could have implications for other businesses which produce ‘Zero Rated’ printed publications but currently treat the electronic editions of the same publications as being ‘Standard Rated’.
Group 3 of Schedule 8 of the VAT Act has listed publications to which the ‘Zero Rate’ could apply. However, the interpretation has always been that these are physical items rather than electronic editions. This distinction has been partly because the physical editions have been seen as goods whereas the digital versions have been seen as services.
In making the ruling, the Upper Tribunal overturned a previous ruling by a First Tier Tribunal (FTT) which concluded that the relief was only intended to relate to goods.
Ruling in the Upper Tribunal, the judge said that electronic and print versions were “sufficiently similar” to enjoy the same VAT treatment and that the VAT legislation does allow both goods and services to be ‘Zero Rated’.
The issue was therefore whether the electronic editions could themselves be viewed as being newspapers.
The Upper Tribunal considered the concept that the legislation should be ‘always speaking’. In other words, at the time the legislation was written there was no such thing as an electronic edition of a newspaper hence the argument that Group 3 only applies to physical printed matter. However, the “always speaking” concept states that VAT law should be able to cope with changes in business practices which were not around at the time that the legislation was written.
The Upper Tribunal found that the digital versions shared the essential characteristics of a newspaper, namely ‘to promote literacy, the dissemination of knowledge and democratic accountability by having informed public debate’.
The Tribunal concluded that the purpose of the legislation was neutral as regards the manner in which the newspaper was supplied – be it digital or physical. It also found that the print and e-reader versions were sufficiently similar that the VAT relief should apply to both.
The difference in treatment of physical and digital publications has long been an idiosyncrasy in the VAT world. It is understood that EU ministers voted to allow a similar VAT treatment of physical and e-books in October last year but that at the time the UK Government did not follow suit.
Julian Borley, Director of VAT at Milsted Langdon, said: “This is a very interesting ruling. I suspect that HMRC may well wish to appeal it further as the ruling could widen the scope to enable other digital publications to be ‘Zero Rated’.
In theory, the concept of the legislation ‘always speaking’ could allow other items listed in Group 3 Schedule 8 of the VAT Act to be ‘Zero Rated’. This would include items such as books, journals and newsletters. As long as the content is the same in both physical and digital editions (i.e. no embedded videos or sound links) then ‘Zero Rating’ may become available. Publishers need to be aware of this opportunity, but it could also be important to organisations such as charities and membership organisations which provide newsletters in a digital form. It remains to be seen what response HMRC will have to the ruling.”
For help and advice on matters relating to VAT, contact our expert team at Milsted Langdon today.