The Government announced at Budget, on 11 March 2020, that it intended to legislate to apply a permanent zero rate of VAT to supplies of certain electronic publications (‘e-publications’) with effect from 1 December 2020. On 30 April 2020, the Government announced that it would bring forward the implementation date to 1 May 2020. The Government press release notes: “The Chancellor has opted to bring the zero rating forward to make entertainment more affordable for readers who are rightly staying at home during the coronavirus crisis – and are more reliant on e-publications as a result”.
Supplies of e-books, e-newspapers, e-magazines and academic e-journals will now be entitled to the same VAT treatment as supplies of their physical counterparts. As the Government has decided to bring forward the implementation date of this measure, it has not been possible to consult in the time available.
- Press release: VAT scrapped on e-publications
- Policy paper – VAT: zero rating e-publications
- Revenue and Customs Brief 3 (2020): VAT liability of supplies of electronic publications
CTG Chairman John Hemming commented: “CTG welcomed the announcement in the Budget that the Government would introduce a VAT zero rate on digital publications. This is an outcome that CTG has campaigned for over many years and was prominent in our Budget submission to the Chancellor. Charities use publications to tell people about their work or to inform the public in an area the charity is dedicated to. Charities will also try to generate extra funds in this way to fund their charitable activities. A lower tax burden enables more resources to go into these activities. It is a shame that there was no opportunity to comment on the scope of the relief before it was introduced, but we welcome the decision to bring forward the application of the zero rate in response to COVID-19. We look forward to reviewing the detailed guidance in due course, particularly how video and audio content are to be defined”.
Group 3 of Schedule 8 to the Value Added Tax Act 1994 (“Group 3”) provides for the zero rating of printed matter. Sections 30(4) and 96(9) of that Act give HM Treasury powers to make an order to amend the scope of Group 3 and the Notes to that Group. The European Union (EU) vires for the extension of the zero rate to electronic publications are contained in Council Directive (EU) 2018/1713, which changed the scope of the EU’s optional reduced rate provisions. This Directive came into force in December 2018. Where member States (including the United Kingdom (UK) during the Transition Period) have a reduced rate (or an equivalent zero rate) for supplies of printed publications, it gives them the option to extend that reduced or zero rate to supplies of electronic versions of those publications. The UK has decided to exercise this option to extend its maintained zero rate to supplies of certain specified electronic publications.
Legislation will be introduced by statutory instrument to amend Group 3. Subject to certain exclusions (see next paragraph), the legislative changes will zero rate supplies of:
- e-periodicals (including magazines)
- electronic versions of children’s picture and painting books.
The exclusions referred to are to e-publications that are wholly or predominantly devoted to advertising or to audio or video content. The exclusions for video content and audible music are necessary to comply with the vires in Council Directive (EU) 2018/1713. The sale of e-audio books continues to be standard rated in UK law in line with government policy.
Legislation was introduced in the Finance Act 2011 to counter avoidance schemes entered into by some businesses that artificially split supplies so that they could benefit from the zero rate for printed matter. The new legislation will ensure that businesses will not be able to enter into similar schemes when e-publications become zero rated.
This measure will zero rate the supplies of certain e-publications with effect from 1 May 2020. As explained in Revenue and Customs Brief 1(2020) , HMRC’s policy is that supplies of all e-publications are standard rated for VAT purposes until the changes outlined in this brief take effect on 1 May 2020.
Assuming the VAT saving is passed on to customers, it is tentatively estimated by HMRC that the average VAT saving on the purchase of an e-book currently costing £2.00 will be around £0.33, the VAT saving on an average typical annual newspaper subscription will be around £25 and the VAT saving on an average annual magazine subscription will be around £20.
As businesses are not getting advance notice of this tax change, the Government appreciates that they may not be able to implement pricing changes and other adjustments immediately. For continuous supplies (i.e. subscriptions that cover before and after 1 May 2020), the normal ‘time of supply’ rules apply.
If you have any questions about this change e-mail: [email protected].
BUFDG has published a really helpful practical guide on the change for universities, but this will no doubt be useful reading for many charities.