New VAT Zero Rating for Digital Publication - by Leavitt Walmsley Associates
As an expert in your field, Continuing Professional Development (CPD) is important, and is often essential to upholding registration with relevant professional bodies. Staying up to date with the latest news and developments within your industry helps to ensure you and your colleagues deliver best practice to your customers or clients. And now maintaining your skills and learning within your profession should become easier and less expensive. The announcement of a new VAT zero rating for digital publications will be of particular interest to businesses that can’t fully recover input tax due to the nature of their supplies.
Traditionally, physical newspapers, books, journals and periodicals have been the main source of information for individuals and businesses. But with technological advances over the last few decades, more and more professionals and organisations are making the switch to subscribing to online resources.
Until now, businesses subscribed to forms of e-literature have found themselves subjected to the standard rate of tax, paying additional VAT on top of the cost of expensive yet essential subscriptions. A recent ruling by the Upper Tier Tribunal (UT) will see a change to the VAT classification of digital literature.
The New VAT Zero Rating for Digital Publications
Physical tangible newspapers and books have been considered exempt from VAT since the tax was first introduced in 1972. Decision makers in the 1970s couldn’t have predicted the growth of, and our reliance on, the internet, and as a result the same zero-rating allowance hasn’t applied to literature available online. Online books, newspapers, and magazines have been classed as standard VAT rate since directive 2006/112/EC categorised them as ‘electronic services’.
News Corp UK and Ireland Ltd brought the case of paying VAT on digital publications to a First Tier Tribunal (FTT) in 2018, which ruled that digital newspapers met the criteria for an electronic service and were therefore liable to VAT charges. The global media corporation
contested this result, raising an appeal to the UT which overturned the original outcome on 24th December 2019.
The Supply of Newspapers vs The Supply of Electronic Services
Following the UT appeal, it was determined that online newspapers have no real material difference compared to a physical copy. As long as the online content isn’t edited or updated excessively, the digital version should be zero rated when it comes to VAT payments.
This new VAT rate won’t only affect digital newspapers, but will include other electronic literature like e-books too. So, it’s worth checking your subscriptions to see if you stand to gain from the change.
How will this affect suppliers?
If you’re a supplier of electronic literature, you’ll need to check how your supplies fit within the zero-rating ruling. You’ll need to:
- ensure your future supplies are zero-rated
- decide how you will handle VAT charged over the past four years
- develop or adapt the process for handling customer claims in relation to VAT
- submit any claims to HMRC for over-paid tax
How will this affect tax-payers?
Businesses who purchase or subscribe to digital publications may wish to:
- approach suppliers to request a VAT refund
- submit a ‘protective claim’ to HMRC to recover VAT going back over the standard four-year period
If you would like some guidance around which digital materials meet the requirements for VAT zero rating and how you should go about handling a VAT refund or claim, get in touch with a member of our expert tax team in Warrington on 01925 830 830 or in Manchester on 0161 905 1801.