Zero rate of VAT for charity sector digital publications

The Government has announced that, due to coronavirus, the application of the zero rate of VAT to supplies of 'digital publications' will be brought forward to 1 May. Read our full article on this here. With specific focus on the charities sector the change in VAT liability will have a positive impact in particular for:

  • Research charities
  • Universities
  • Colleges
  • Schools

These organisations should find that digital publication subscription costs are reduced by 20 per cent. Similarly there will be no need to account for VAT via the reverse charge procedure on the receipt of digital publication services from overseas suppliers. Where you have paid an annual subscription fee it should be possible for the supplier to issue a VAT credit note in relation to the proportion of the charge that relates to periods post 1 May 2020.

Greater proportion of membership income can be zero rate

Where charities have a membership scheme you may have chosen to utilise the concession which allows you to apportion the membership subscription and apply the appropriate rate of VAT to each distinct element.

Historically you will have accounted for VAT on the proportion of the subscription that relates to digital publications. With effect from 1 May 2020 this element can be taxed at the zero rate.

It may be possible to obtain a refund of VAT from HMRC in respect of annual memberships paid in advance where VAT has already been accounted for in relation to the value of digital supplies to be provided post 1 May 2020.

If your apportionment calculation is cost based you may need to agree a new methodology with HMRC, one that captures the expenditure relating to digital publications.

This change in VAT liability will also provide charities with the opportunity to revisit their publications strategy, a move to digital will now no longer have a negative impact on the value of income to be retained by the charity.

Also for those charities that have not hitherto used the concession, and who continue to exempt their membership income now may be a good time to consider whether the use of the concession could be financially beneficial. 

Key actions

  • Identify pre-paid digital publication expenditure and liaise with the supplier to ensure that a VAT credit note is issued and the associated refund is received.
  • Review membership apportionment calculation and if appropriate obtain HMRC’s approval to change the methodology so that it fully encompasses the broader range of zero rated activities.
  • If output VAT has been declared on membership income paid in advance – prepare an associated claim for overpaid output VAT.
  • If you don’t currently utilise the concession now may be a good time to revisit.
  • Consider whether it would be appropriate to prepare a protective VAT claim in light of the News Corp VAT litigation.

The RSM indirect tax team can help your charity to realise the financial benefits of the change and in particular release much needed cash. For more information, please contact Audrey Fearing or Scott Harwood

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