In response to the economic impact of the coronavirus outbreak, the Government has announced that the application of the zero rate of VAT to supplies of 'digital publications' will be brought forward to 1 May. While this is good news, organisations should not forget that the News Corp litigation may create an opportunity for VAT reclaims going back four years.
Which products are covered by the zero rate?
This change will impact any business that sell the following 'electronically supplied' products.
- Journals and periodicals - including magazines
- Children’s picture and painting books
The HMRC guidance provides no specific definition of electronically supplied other than to state that it should be given its ordinarily accepted meaning and includes supplies made over the internet and by e-mail.
Items excluded from the zero rate
There are, however, some items that are not included within the publications eligible for zero rating. In the guidance, HMRC specifically state that the following will not qualify.
- Publications where more than half the content is devoted to advertising, audio or video content
- Supplies of intellectual property
- Publications that are predominantly for completion, rather than for reading
- Software (eg applications designed to enable the consumption of digital publications)
E-publications sold with other products
Organisations selling e-publications with other products will need to consider whether they are making; a single supply of the zero-rated e-publication, a supply which is subject to another rate of VAT or some combination of separate supplies (attracting a composite rate of VAT).
What action is required?
There will be several steps that businesses need to take to ensure that the zero rate is applied correctly. Firstly, it will be necessary to identify whether the products being sold will qualify for the zero rate under the new rules. Systems changes may be necessary to ensure that tax codes and invoices are updated appropriately.It may also be necessary to consider changes to the way in which prices are displayed to customers.
Finally, the ongoing litigation in the News Corp case means that historic claims for overpaid VAT could also be available to affected businesses.
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