VAT zero-rating now applicable to businesses e-publications
Businesses that rely on the production of guides, physical books, newspapers or other printed materials currently enjoy a zero-rating for VAT.
However, those who sell and publish similar content online have had to pay VAT at the standard rate.
This is now set to change after a decision made by the Upper Tax Tribunal (UTT) confirmed that the suppliers of electronic literature should now consider their supplies zero-rated in the same way as their physical printed equivalent.
The UK has had the opportunity to keep both supplies zero-rated for some time after the EU adopted a VAT Directive permitting EU member states to tax the supply of electronic publications at the same rate of VAT as the printed equivalents.
Despite this directive, the UK has not decided to follow suit and the supply of content electronically has remained standard-rated for VAT.
The decision that looks set to change this now though is the case of News Corp UK & Ireland Limited ( UKUT 0404 (TCC), decided 24 December 2019).
During the case at the UTT, News Corp argued that its supply of its newspaper electronically was still the zero-rated supply of a newspaper in accordance with Item 2, Group 3, Schedule 8, VAT Act 1994.
However, HM Revenue & Customs (HMRC) defended the current arrangements saying that it was a supply of electronic services and therefore standard-rated.
Having weighed up both arguments, the judge found that there was no material difference and that the electronically supplied newspaper should, therefore, be zero-rated.
Within the judgment, the UTT indicated that restrictions would apply and clarified what might, or might not, be acceptable as an electronic equivalent to a newspaper. It is thought that this ruling, using the judicial “tool of construction”, applies not only to digital newspapers but to many other forms of digitally supplied literature too.
Businesses which purchase digital publications but which have been unable to recover all the VAT incurred should consider approaching their suppliers and requesting a refund of the overcharged VAT, while the suppliers themselves should consider whether to zero-rate future supplies.
They may also wish to make claims to HMRC in respect of overpaid output tax, which may help them to cover any requests from customers who are seeking to recover the VAT themselves.