The government-backed change in the VAT treatment of certain digital publications from standard to zero rated has been brought forward from 1 December 2020 to 1 May 2020. A recent ruling in the Upper Tribunal could open the door to publishers of digital publications making historic claims for significant recoveries of VAT.
Zero rating VAT treatment was applied to printed newspapers in 1973, when VAT was introduced in the UK, to help keep newspapers as affordable as possible. As technology has developed, news has increasingly become available online and the supply of digital publications has been subject to the standard rate of VAT of 20%.
This has often been a contentious issue, with printed publications being determined for VAT purposes as being a supply of zero rated goods but their digital counterparts being treated as a supply of standard rated services. This conflicting treatment was also apparent across various EU member states.
News Corp UK & Ireland Ltd VAT case
News Corp, publishers of The Times and The Sun newspapers, argued that ‘fiscal neutrality’ should apply – that the VAT treatment of the same or similar supplies in competition should be identical. HMRC rejected the claim but News Corp appealed and took its case to the First-Tier Tribunal which supported HMRC’s view that digital newspapers could not be classed as zero rated. News Corp appealed the case to the Upper Tribunal which found in News Corp’s favour in December 2019.
The tribunal ruled that zero rating could include both good and services, and that the supply of digital newspapers fell within this. The Upper Tribunal recognised the ‘always speaking’ doctrine to take account of technological advances when interpreting what the law intended. Digital newspapers did not exist when the zero rating was introduced, but the tribunal reasoned that the zero-rating intentions originally introduced to aid the population’s literacy should be interpreted to include digital newspapers in UK VAT law. The judgment allows for equal VAT treatment of digital versions of newspapers, therefore fiscal neutrality.
While HMRC has been granted permission to appeal the decision to the Court of Appeal, this is a major ruling that could result in many business launching protective claims against HMRC to recover historic overpaid VAT on digital supplies – something that was not addressed when the government announced the VAT rate change effective from 1 May 2020.
HMRC is likely to try to overturn the ruling and has been granted permission to go to the Court of Appeal. The March 2020 Budget announcement by Chancellor, Rishi Sunak bringing forward the zero rate implementation date from 1 December 2020 to 1 May 2020 is unlikely to help HMRC’s appeal. It is unlikely that claims will be processed by HMRC until the News Corp appeal has been resolved, but we would advise businesses to make a protective claim to HMRC to safeguard your position pending the conclusion of the case.
Businesses should now review their digital publications and prepare to launch a claim if the potential recovery is significant, subject to a four year cap. Providers of digital publications may also face the prospect of recipients of such supplies wishing to reclaim the VAT they have paid historically, so a protective claim will also prevent any further losses.
This may be a significant opportunity for those who sell digital publications, and those who purchase these for business purposes but cannot recover VAT in full on their costs, such as charities, not for profit entities/membership organisations, and partially exempt businesses. If you are interested in submitting a protective claim for VAT overpaid on supplies of standard rated digital publications or would like further guidance on the impact of this change, please contact our Indirect Tax Team for assistance.