Standard-rated as a service, or zero-rated – A News Corp VAT conundrum

Sean Turner

Sean Turner – VAT Specialist

News Corp UK & Ireland Limited (Newscorp) owns The TimesSunday TimesThe Sun and Sun on Sunday.  The issue here is whether the digital version of these newspapers is standard-rated as a service, or zero-rated as a publication, akin to a physical newspaper. 

The First Tier Tribunal ruling

The First Tier Tribunal said that, although the digital content is the same or very similar, one was goods and one services and therefore, found in favour of HMRC, as the zero rating schedule applied to goods only and the strict interpretation of a newspaper should apply.  HMRC have now lost on appeal at the Upper Tier, News Corp saying that the digital version of a newspaper is not a service. 

The Upper Tier said that the item, a digital newspaper, did not exist when the zero rating schedule was introduced.  Two points were of importance here:

  1. Whether digital versions were in fact ‘newspapers’ within Item 2, Grp. 3, Sch. 8 of the UK VAT Act and therefore zero-rated
  2. Whether application of fiscal neutrality required that zero rating should apply, because similarities between the print and digital versions from a consumer perspective meant the same VAT treatment

The ‘digital’ detail

manufacturing diagram

What mattered was whether the digital service met the description of a ‘newspaper’.  The Upper Tier said that the publication was intended ‘to promote literacy, dissemination of knowledge and democratic accountability, by having informed public debate’ and that the digital service shared the essential characteristics of a newspaper, for example, being edition based and therefore the zero rating was correct.

HMRC has announced they will now be appealing the decision and have published Revenue and Customs Brief 1(2020), confirming that HMRC’s VAT treatment of supplies of digital newspapers and other digital publications has not changed following the Upper Tier Tribunal decision.  It also explains how businesses can submit claims for overpaid VAT and protect their position, should they wish to.

However, in Wednesday’s Budget, the Chancellor announced that zero rating would be extended to digital publications, which includes books, newspapers and textbooks, from 1 December 2020, therefore putting e-books in line with printed matter.  This abolition of the so-called ‘reading tax’ will be welcome.

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