Electronic publications – VAT free opportunity?

If you sell electronic publications, there could be an opportunity to submit a claim to HMRC for VAT paid.

Why – aren’t these subject to VAT?

Yes, currently, in the UK, whilst physical books, magazines etc are subject to VAT at the zero rate, electronic versions are subject to VAT at the standard rate (currently 20%).  The EU is slightly different as the zero rate isn’t widely available but books and similar in the EU are generally subject to the reduced rate.

There have been a number of Tribunal cases on this issue plus a lot of lobbying at National and EU level focussing mainly on the principle that fundamentally the delivery format should not affect the VAT liability; a book is a book and all formats should be treated the same.  HMRC argue that the UK VAT law relating to books etc is only directed at physical goods whereas the supply of an electronic publication is a supply of services and, for this reason, HMRC have resisted treating the sale of electronic publications differently.  However, the law hasn’t really changed since it was written in 1973 when the concept of electronic publications didn’t exist – should the format matter?

Even then, in 2018 the EU agreed that Member States could apply a reduced rate of VAT to the supply of electronic publications (as above, the zero rate doesn’t apply generally in the EU) but, at the same time, agreed that where a Member State applies a super reduced rate (or a zero rate) to books etc, that Member State could treat electronic supplies at the same rate.  This was not a mandatory change, however, and it is perhaps unsurprising to learn that the UK decided not to apply either the reduced rate or the zero rate to the supply of electronic publications (as it would have been entitled to).  When the UK leaves the EU, subject to the terms of any deal, it can ignore the EU rules in any case so the UK law will still be relevant.

So, what’s changed?

The Upper Tribunal has recently issued its decision in the case of News Corp UK & Ireland.  The case was in relation to the digital versions of publications such as The Times and The Sun.  A First Tier Tribunal (FTT) had ruled in 2018 that digital versions were not “Newspapers” as defined and as such the zero rating could not apply but the Upper Tribunal has determined that the FTT was wrong to conclude this; the UK legislation is silent on the format of the items in question and given that the purpose of zero rating was to promote literacy and disseminate knowledge, amongst other things and the versions were sufficiently similar, the original legislative purpose should be extended to the electronic version.

Where does this leave us?

Unlike a First Tier Tribunal decision, an Upper Tribunal decision is binding and can be relied upon by taxpayers and HMRC.  As it stands therefore there is a potential opportunity to seek a refund from HMRC for any VAT currently paid/ charged on electronic publications in the last four years.  Any Tribunal decision can be appealed (subject to the facts) and time will tell whether HMRC decide to appeal.  If they do not, the decision will stand, and we can expect HMRC to issue a business brief or change the law to address the point.  In the meantime, given that if HMRC do appeal and the process could take some time to be resolved, any affected parties could submit a protective claim to HMRC for VAT overpaid in the last four years to preserve time limits, if HMRC subsequently lose.

Not all electronic publications will necessarily be affected – there are some points to consider here such as whether the electronic publication is effectively the same as the printed version as there are variations on a theme for these things and this case was found very much on its facts.  However, anybody who has charged and accounted for VAT on electronic publications should consider this further.  Any claim submitted needs to be handled carefully.  Without the ability to demonstrate an appropriate level of due diligence in making the claim and how it is worded businesses could be exposed to penalties. It is also important that claims are handled appropriately as there are deadlines to adhere to beyond which a claim may be invalidated. As ever, please talk to a VAT professional before acting.

You can contact Rupert Moyle or Colin Laidlaw if you require assistance in this regard, on +44 (0)330 124 1399.