UK and International Tax news

VAT Treatment of Digital Newspapers

Friday 17th January 2020

The Upper Tribunal has recently found for the taxpayer in an appeal relating to the VAT treatment of digital newspapers.

In News Corp UK & Ireland Ltd v HMRC [2019 UKUT 0404], the main question at issue in the appeal was whether digital versions of newspapers published by the appellant, News Corp UK & Ireland Limited (“News UK”), were “newspapers” within the meaning of Item 2, Group 3 of Schedule 8 VATA 1994 and were therefore zero rated for VAT purposes.

News UK was the representative member of a VAT group that published, principally, The Times, The Sunday Times, The Sun and The Sun on Sunday.

In a decision released on 8 March 2018, the FTT concluded that, although the digital versions were the equivalent to the newsprint editions, they were not “newspapers” within the meaning of Item 2.

News UK’s appeal raised two issues:

(a) whether the digital editions of the newspaper titles were “newspapers” within the meaning of Item 2; and, if not,

(b) whether the application of the principle of fiscal neutrality nevertheless requires zero-rating.

HMRC raised the following additional issues:

(a) whether the FTT’s finding that the digital editions were similar to the print versions of the newspapers was one which no reasonable tribunal could have reached (on the basis of the test in Edwards v Bairstow [1955] 3 All ER 48); and

(b) whether the decision was supported on the additional ground that News UK’s case was inconsistent with the PVD [Articles 96 to 99, 110 and 114].

The only provision of the PVD which deals with zero-rating is Art 110 and its purpose is to permit the preservation in each Member State (so far as zero-rating is concerned) of the treatment under that Member State’s domestic law for zero-rating of items, which existed as at 1 January 1991.  This was intended to be a temporary measure, pending introduction of “definitive arrangements”, but no such definitive arrangements have yet been introduced.

As far as the UK is concerned, Art 110 has the effect of preserving the measures for zero-rating that were enacted immediately prior to the UK joining the EU; it being common ground that the relevant UK legislation had not changed in any material respect since 1972.

The UT noted that the FTT’s conclusion was based on its finding that the whole of Group 3 was concerned only with goods, not services.  This was fatal to News UK’s case given it was common ground that digital versions of the newspaper titles were services, not goods.

However, the UT concluded that the FTT’s reasoning did not justify the conclusion that the fact that digital newspapers were services was itself sufficient to exclude them from Item 2.  The question remained whether the word “newspapers” is to be interpreted as including the relevant digital versions of the relevant newspapers in this case.

The UT held that the EU provisions were of no relevance to the issue raised by the appeal and it was common ground that the EU has so far not legislated in respect of zero-rating, aside from the standstill provision in Article 110.  Since that defers to the domestic law of each Member State, it is the domestic law of the UK which must apply.  The fact that within EU legislation relating to related subject matter (reduced-rating for VAT purposes) there is a clear distinction drawn between printed matter and electronically supplied services is not relevant to the question of statutory construction of UK law.

Given the UT allowed the taxpayers appeal, there is the possibility is that this ruling applies not only to digital newspapers but to other forms of digitally supplied literature. This will affect a wide variety of taxpayers, in particular partially exempt businesses which purchase digital publications but which have been unable to recover all the VAT incurred (such as banks, insurers, educational establishments and others) should consider approaching their suppliers and requesting a refund of the overcharged VAT.  In addition, suppliers of digital publications should consider whether to zero-rate future supplies and how to deal with VAT charged on digital publications supplied in the past four years. Suppliers should consider whether to make claims to HMRC in respect of overpaid output tax.

If you would like more details on this case, please contact Keith Rushen on 0207 486 2378.

Contact Us