The Upper Tier Tax Tribunal has reversed the decision of the First Tier Tribunal in the case for News Corp UK & Ireland Ltd . The case relates to the VAT treatment of newspapers that are supplied as digitised products.
This is a potentially significant decision for both publishers of e magazines and newsletters but also for charities, membership organisations and other bodies that supply e newsletters to their members and account for standard rated VAT on the supply. Longer term it may well also impact on the VAT treatment of e books and magazines.
The appellant was the representative of a VAT group publishing newspapers including The Times, The Sun and other publications and had previously lost at First Tier Tribunal (FTT) level. This was on the basis that the FTT accepted that the e publications were essentially the same as hard copy newspapers but that the supply was that of an electronic service rather than goods. The FTT took the view that item 2 to group 3 Schedule 8 of the UK VAT Act 1194 that zero rates newspapers should be strictly interpreted. Therefore zero rating could only apply to what the law was intended to be limited to, that is zero rating of physical, hard copy newspapers. The law in question was of course written before the rise of the internet and mass use of digitised publications.
The Upper Tier Tribunal (UTT) examined what the word “newspaper” actually meant and if this was sufficiently broad to cover digitised products and also if the “always speaking of” principle was applicable (that is the law was always speaking of all forms of newspapers rather than only hard copies) and should be interpreted as including e newspapers.
The UTT found in favour of News International on the basis that all parties agree that the purpose of Item 2, which zero rates newspapers was to promote literacy, the dissemination of knowledge and democratic accountability by having informed public debate. The term newspapers clearly in this context should be broad enough to cover any form of publication including e newspapers which did not exist and could not have been foreseen when the zero rating was first envisaged in Finance Act 1972.
The concept of ‘always speaking’ of newspapers should take into account relevant changes to the format of newspapers that have arisen since the legislation was drafted. This is provided that the change does not alter the meaning and intention of what the zero rating was intended to cover beyond the principles originally envisaged. A strict interpretation of the scope for item 2 was required but not to the extent that it deprived the legislation of its original meaning, which was to promote literacy, disseminate news etc. The fact that newspapers could now be obtained in a digital format rather than printed hard copies would not have been envisaged when the law was first written and this fact should not preclude zero rating from applying.
If you or your client supply digitised newspapers and newsletters and account for standard rated VAT on the supply it would be worth speaking to your usual VAT advisor or calling our VAT helpline to discuss the impact of the case on your VAT position and the scope for a retrospective claim for VAT over declared, subject to meeting the unjust enrichment test. It should be noted that HMRC are highly likely to contest the UTT decision however making a claim now will ensure that if the appellant enjoys continued success with supporting zero rating at Court of Appeal or beyond, any VAT over declared on e newspapers, journals and magazines is not lost due to falling outside the four year cap.
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