News Corp UK and Ireland Limited (News Corp), the publisher of The Times amongst other titles, has been successful in its appeal to the Upper Tribunal (UT) where it argued that digital versions of its newspapers should be zero rated for VAT purposes. Until now, HMRC’s policy has been to apply VAT to digital publications at the standard rate of 20 per cent.
The publisher argued that its digital editions were ‘newspapers’ within the meaning of the UK VAT legislation and should therefore be zero-rated.
In a First-tier Tribunal (FTT) ruling issued in March 2018, it was found that the content of the digital and printed editions of The Times and The Sunday Times were 'fundamentally the same or very similar'. It concluded that the digital editions constituted a supply of services rather than goods, and that the legislation relating to zero rating of publications was confined solely to goods. The publisher had also argued that the word ‘newspaper’ should be interpreted in a way which keeps pace with technological developments, but the FTT decided that a strict interpretation should apply.
In its appeal decision, the UT determined that the FTT had been wrong to conclude that the zero-rate was intended to be limited to items that were goods as opposed to services. Furthermore, it stated 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.’ It concluded that the purpose of the legislation was neutral as regards the format in which the newspaper was supplied – be it digital or physical – and that the print and e-reader versions were sufficiently similar that the original legislative purpose extended to both.
While HMRC has already obtained permission to appeal this decision to the Court of Appeal, it is a significant win for News Corp and could affect many media organisations and charities that publish or purchase digital editions of their publications. The UT’s findings could potentially extend beyond newspapers to other types of media that are issued in both print and digital format (eg books, magazines, maps or sheet music).
Publishers should consider submitting protective claims for any overpaid output VAT on digital publications so that potential savings do not fall out of time under the four-year capping provisions. Organisations that suffer VAT on digital publications purchased from outside the UK under the reverse charge mechanism may also have a claim. HMRC has now published Revenue and Customs Brief 1 (2020) setting out the procedure for making claims. Publishers will be required to submit appeals to the First-tier tax Tribunal and ask for them to be stood over behind the News Corp litigation.
The Government is under pressure from other sources to consider prospective changes to its VAT treatment of digital publications. Last year's Cairncross Review specifically recommended extending the zero-rating of VAT to digital newspapers and magazines, and an ongoing celebrity led campaign called ‘Axe the reading tax’ aims to persuade the Government to extend the VAT zero-rate to include eBooks and audio books. It seems likely that the Government will review or at least make a statement on the VAT position of digital publications fairly soon.