New ruling on online publications could mean VAT reclaims for not for profit organisations
A recent judgement at the Upper Tribunal (UT) ruled in favour of News Corp UK & Ireland Limited (the newspaper), agreeing that digital newspapers can be zero-rated and overturning the decision of the First-tier Tribunal (FTT). The reason given for the decision was that when the zero-rating provisions were put into law in 1991, digital newspapers did not exist. Therefore, there was no need to include the supplies of these within the relevant area of the VAT law.
This decision is very positive for not for profit organisations such as charities and membership bodies who provide digital publications, either by selling digital versions of printed publications and journals, or given as part of a benefits package included in a membership subscription.
Currently supplies of print newspapers, like all physical printed matter, are zero-rated for VAT purposes. However, all online versions and website subscriptions pay VAT at 20% even if the content is identical.
At the UT, the newspaper based its appeal on two issues:
1. Whether the digital editions of the newspaper titles were ‘newspapers’ within the meaning of Item 2, Group 3 of Schedule 8 of Value Added Tax Act 1994 (the zero-rate provisions); and
2. Whether the application of the principle of “fiscal neutrality” required zero-rating to apply to both (i.e. they should all receive the same VAT treatment).
Originally the FTT had ruled in favour of HMRC, concluding that the digital editions provided services rather than goods; whereas the relevant schedule in the legislation relating to zero-rating was confined solely to goods, i.e. physical versions.
The newspaper then appealed to the UT, where they were successful. The argument accepted by the UT judge was that the digital versions were not available or envisaged when zero-rate “stand still” provisions were put into place in 1991.
The way forward
It is expected that HMRC may attempt to overturn this decision on appeal as such an important decision could impact many media organisations and other organisations that publish digital editions.
It is also worth noting that the EU is currently debating whether to change the rules on VAT on digital books and online published media to reflect the fact that lower rates of VAT apply to the physical versions.
HMRC is understood to be carefully considering the decision and we are waiting to see if they will appeal it. However, this could provide a real opportunity for suppliers of digital publications to make savings in VAT and to consider making claims for a refund of overpaid output tax for the last four years.
To maximise opportunities, those affected should consider putting in protective claims now – going back up to four years to avoid earlier periods going out of time. Membership organisations that include digital publications in a benefits package, especially those using the concession for apportionment of the subscription rates between taxable and exempt or zero-rated supplies, should consider reviewing the basis of apportionment in light of this decision.
If you would like further advice or assistance with this, please speak to your usual contact partner or Debbie Jennings, VAT Director in our specialist VAT team on 020 7566 3735.