When is a book not a book? When the tax man gets involved

Ian Brown, VAT Manager at RSM comments:

‘Today on World Book Day we will all be cheered up by thousands of children dressing up as their favourite character and trading books.  

‘However, HMRC could be set lose £216m in taxes a year on the sale of e-publications after a recent Tribunal decision. This could mean cost savings are passed on by suppliers to those consumers who love their ebooks.

‘The Upper Tribunal’s decision in News Corp UK was that charges for e-newspapers should be zero-rated, the same VAT treatment as has been applied in one form or another since 1972 to physical copies of newspapers. On this basis, the Upper Tribunal’s decision suggests that the zero-rating could also be extended to digital copies of other printed matter, most notably books.

‘Whilst definitely not a drama or thriller, the Upper Tribunal’s decision, and its application of the (deemed to be) relevant legislation is intriguing. 

‘In 1972, the term ‘newspaper’ or ‘book’ could only have meant the physical paper copies that existed at that time. The Upper Tribunal has now concluded that in 2020, the term ‘newspaper’ includes both physical and digital copies and therefore, VAT legislation has allowed for e-newspapers to be zero-rated since first introduced in 1972. 

‘HMRC has publicly announced that it is still its policy that e-newspapers and other digital publications should be liable to standard-rate VAT at 20 percent, so it is not ready to accept defeat on the £216m of VAT to be collected on epublications just yet.

‘HMRC has been granted permission to appeal the Upper Tribunal’s decision to the Court of Appeal so the sequel is in progress. And with the Chancellor looking to increase expenditure in his Budget next week the last thing he wants to be doing is to have to fill more holes as well.  

‘We will have to await the Court of Appeal’s decision and whether a mini-series is in the offing.’