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The Chancellor announced in the 2020 Budget that the government will legislate to apply a zero rate of VAT (instead of the current 20%) to e-publications to provide clarity that: e-books; e-newspapers; e-magazines; and academic e-journals are entitled to the same VAT treatment as their physical counterparts, to support the ‘education of our people’. This change will take effect from 1 December 2020.
When announcing the change, the Chancellor stated “Today I am abolishing the reading tax”, but in this article we explore the question: were these publications already zero rated?
Although the announcement was great news for businesses and the end consumer, was the government implementing this change for the greater good or because they were forced to clarify the point due to an upper tier tribunal hearing?
Were these e-publications already zero-rated?
In the case of News Corp UK & Ireland Limited v The Commissioners for HM Revenue and Customs:  UKUT 0404 (TCC), News Corp UK & Ireland Limited put forward the argument that the supply of its newspaper electronically was still the zero-rated supply of a newspaper as set out in legislation.
However, HMRC did not believe this to be correct and instead argued that it was a standard rated supply of electronic services; a decision that would bring 20p in the £1 back to the Exchequer.
The judge concluded and decided on 24 December 2019, nearly four months before the Budget announcement, that the electronically supplied newspaper should be zero-rated as there was no material difference between the physical and electronic versions.
EU backed since 2018
Furthermore, the EU (in 2018) adopted a VAT Directive permitting EU member states to tax the supply of e-publications at the same rate of VAT as the printed equivalents but the UK government decided not to take advantage of this permission.
Given the decision of the upper tier tribunal, one could very well argue that all suppliers of e-publications, whereby the physical counterparts are zero rate supplies, should have already been charging a zero-rate of VAT, rather than having to wait until the legislation, takes effect from 1 December 2020.
Also, should companies and businesses that are partially exempt for VAT purposes (therefore previously unable to claim back all the VAT they were charged on e-publications), be requesting refunds from their suppliers for previously overpaid and overcharged VAT?
It is disappointing to see HMRC’s failure to apply legislation accurately being portrayed as a progressive and positive change in Government policy, though this tale helps demonstrate the real need for professional advice when dealing with any and all tax related matters.
If you are a company that are now unsure of how you should be treating your input or output VAT on e-publications, then please do not hesitate to get in touch for an hour’s free consultation.
Contact our specialist team
- Emma Bird – Senior Tax Adviser
- Tel +44 (0)20 7832 0444
Senior Tax Adviser
Emma is both an ACA qualified accountant and qualified chartered tax adviser, enabling her to take a holistic and commercial view of tax planning opportunities by understanding the impact planning will have on a company’s accounts.
In addition, her background in working with entrepreneurial and owner managed businesses has provided her with significant experience in dealing with both personal and corporate tax matters.
Her areas of specialism include advising on the Enterprise Investment Scheme, schemes of reconstruction, employee incentive schemes (including the Enterprise Management Incentive scheme), the residence position of both individuals and companies, and VAT.