With most of us now engaging in home-based activities, it is undeniably good news that the government’s March budget promised to axe the “reading tax” from December. Digital publishers could now also benefit from VAT refunds retrospectively following a recent UTT case.
What is the reading tax?
For the modern man or woman, a broadsheet leisurely read at the breakfast table or its digital counterpart scrolled through on a phone would both be called “a newspaper”.
From a VAT perspective, however, printed and digital newspapers have historically been defined and treated differently. Under VAT legislation, a digital newspaper is an electronic service and only a physical newspaper is “a newspaper”. The effect of this is that printed newspapers benefit from zero-rating, meaning that no VAT is payable, whereas digital newspapers attract VAT at the usual rate of 20 per cent. The distinction may seem fairly baffling but VAT exemptions are drafted and designed to be interpreted narrowly and when the exemptions were originally introduced, digital newspapers didn’t exist.
To the delight of digital publishers, however, both the recent budget announcement and a recent Upper Tier Tax Tribunal (UTT) case mean that change is coming.
News Corp UK& Ireland Ltd v HMRC  UKUT 0404 (TCC)
News Corp is the owner of a number of newspapers including the Times, the Sunday Times and the Sun, amongst others. It argued that the digital versions of its newspapers should not have attracted VAT at the standard rate under the “reading tax”. The First Tier Tribunal (FTT) agreed that from a consumer’s perspective, the digital versions of newspapers are equivalent to their physical counterparts, that the digital versions were not rolling news but periodic editions (which are a key characteristic of a newspaper) and that the content of News Corp’s paper and digital newspapers was substantially the same. Nevertheless, the FTT held that the strict construction of the VAT exemptions meant that an e-newspaper could not be considered a “newspaper”.
The UTT disagreed and granted News Corp’s appeal noting that the requirement for a strict construction of the exemptions did not preclude the "always speaking" doctrine of statutory interpretation. The doctrine suggests that in interpreting legislation, the court should consider changes that have occurred since the legislation was enacted, such as things not known or understood at the time, so long as the changes do not alter the meaning and purpose of the legislation. The UTT noted that strict interpretation was not meant to include depriving legislation of its intended effect and that as the intention behind zero-rating newspapers was to "promote literacy, the dissemination of knowledge and democratic accountability by having informed public debate", the definition of "newspapers" was wide enough to include digital newspapers, and that News Corp’s digital newspapers should therefore be zero-rated.
What is the effect?
As a result of the March 2020 Budget, not just digital newspapers, but also other digital items that currently receive a different VAT treatment from their physical counterparts (such as e-books), should soon benefit from zero rating.
In the meantime, organisations like News Corp who sell digital media may want to consider submitting claims for VAT refunds as soon as possible based on the UTT’s latest decision in the News Corp case. Whilst HMRC’s historic policy has not changed, and claims will likely be rejected in the first instance, any appeals submitted for overpaid tax benefit from a four year lookback period. There is therefore a potential for a VAT rebate from as far back as 2016, provided the refund is appealed now.
If you require further information about anything covered in this briefing, please contact Katjana Cleasby, or your usual contact at the firm on +44 (0)20 3375 7000.
This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.
© Farrer & Co LLP, March 2020