Revenue and Customs Brief 1 (2020) confirms that HMRC’s VAT treatment of supplies of digital newspapers and other digital publications has not changed following the Upper Tribunal decision in News Corp UK and Ireland Ltd (UT/2018/0065) (‘News Corp’). It also explains how organisations can submit claims for overpaid VAT and protect their position if they want to.
A commentary by CTG’s Technical Adviser, Graham Elliott, on the News Corp case and the broader implications for VAT and reading material, can be read here.
Revenue and Customs Brief 1 (2020): VAT liability of digital publications – Upper Tribunal in News Corp and Ireland Ltd
Supplies of newspapers are zero rated under UK legislation (the relevant provision is Item 2 of Group 3 of Schedule 8 to the Value Added Tax Act 1994). This legislation has been in place since VAT was introduced into the UK in 1973.
HMRC’s policy is that the zero rate only applies to the sale of printed matter (that is, supplies of goods). Therefore, the sale of digital newspapers (which are services) has always been treated as standard rated.
Upper Tribunal decision
The First-tier Tribunal ruled in favour of HMRC. However, the Upper Tribunal upheld News Corp’s appeal and held that:
- group 3 of Schedule 8 is not limited to goods and can include services (such as digital publications)
- the News Corp digital newspapers were essentially the same or at least very similar to the corresponding printed newspapers, fulfilling the same legislative purpose, and falling within the same category of items (or ‘genus of facts’) that UK legislation has always zero rated
- the domestic legal principle known as the ‘always speaking’ doctrine is engaged (essentially, that legislation in certain circumstances should reflect and keep up to date with technological advances)
- the supply of the digital newspapers in dispute fell to be zero rated within Item 2 (notwithstanding that they did not exist when the zero rates were introduced.
HMRC policy in relation to digital publications
There have been no changes in HMRC’s policy, which continues to be that supplies of digital publications are standard rated. HMRC has been granted permission to appeal the Upper Tribunal decision to the Court of Appeal.
Rejection of claims made for supplies of digital publications
As HMRC’s policy has not changed, any claims made in reliance of the decision in News Corp will be rejected.
This approach will help to keep the handling of claims as simple as possible for both parties, minimising the time and resources spent on administering claims whilst protecting the revenue.
Where an organisation considers that the decision in News Corp applies to its own supplies of digital publications it should provide HMRC with full details in writing, including:
- a full description of the supplies for which the claim is being made and which item of Group 3 of Schedule 8 the supplies fall
- clear reasons why it is considered that the claim should be treated in the same way as the supplies in the News Corp Upper Tribunal decision
- a breakdown of the amounts of overpaid VAT being claimed by prescribed accounting period and the method by which they have been calculated
A claimant must be able to give, on request, copies of documentation used in the calculation of a claim. If insufficient information is given in support of a claim it will be rejected and the organisation will need to resubmit its claim with the requisite information.
As HMRC’s policy continues to be that supplies of digital publications are standard rated HMRC will issue a decision to reject the claim. In order to protect its right to claim overpaid VAT an organisation will be at liberty to appeal HMRC’s decision.
All claims will be subject to the 4 year time limit in section 80(4) of the Value Added Tax Act 1994. Once the litigation in News Corp has concluded, appeals will be considered in line with normal procedures. They may also be subject to consideration of unjust enrichment.