News Corp UK & Ireland Limited v. HMRC
Upper Tier Tribunal decision: 24th December 2019
The question was whether digital newspapers fell within the term “newspapers”, and thus would qualify for a specific VAT zero rating granted by the legislation (Item 2 Group 3 Schedule 8 of Value Added Tax Act 1994). The appeal was brought by the publisher of the Times and Sunday Times (in print and digital formats), against an earlier decision in the First Tier Tribunal from March 2018, in which it had been held that digital newspapers did not qualify for the VAT zero rating.
It was agreed by both sides that a newspaper’s essential characteristic is that it is produced in periodic editions (i.e. not rolling news, such as the Guardian site or BBC news). The publisher in this case produced its digital newspaper in e-reader, tablet, website and smartphone editions. All were either exact copies of the print edition, or contained small updates made during the day (three updates during the day, compared to two editions of the print version). The digital editions also contained some extra content (short news videos, interactive puzzles, links to Updatess, some different photos).
The court had to decide whether the digital editions were still “newspapers”, and if the existing legislation (dating from 1972) should be interpreted in a way which is in keeping with technological developments.
The court held that, when the evidence was viewed “in the round”, the digital editions were “essentially” the same as the newsprint editions. The collective factors it considered were: (1) the digital editions were also periodic editions (three updates during the day); (2) the written content of the print and digital versions were “fundamentally the same or very similar”; (3) the updates to the digital versions were relatively minor; and (4) the additional content which could not be provided in newsprint was a “relatively minor” aspect of the digital editions.
It was noted that in October 2018, the Council of the European Union adopted a directive which allowed Member States to choose, if they wished, to use the same VAT rate for e-publications (e.g. e-books and digital newspapers) as for the printed versions. This meant that it was no longer mandatory for Member States to exclude e-publications from the more favourable VAT treatment which they may have given to printed versions (often reduced rated or zero rated under national law).
This was a victory for the taxpayer in the case, and positive news for newspaper publishers who have subscribers who pay exclusively for digital content. However, we note that HMRC are likely to appeal to the Court of Appeal, and so this is unlikely to be the final decision on this topic. Businesses affected will be able to stop charging VAT on digital newspapers, and make VAT refund claims dating back four years, though they may prefer to wait until a final decision is reached before doing so (in the interim they can make a protective claim to stop the clock running out on potential claims). There is also a question, as yet unresolved, of whether this decision can extend to other electronic publications which currently do not receive VAT zero rating (e.g. e-books).