Zero rate VAT for digital publications accelerated
Implementation of the relief from VAT on most digital publications was brought forward to 1 May 2020 to reduce their cost during the coronavirus pandemic.
At very short notice, HMRC brought forward the zero rating for e-publications announced in the March Budget to 1 May 2020.
This was originally to be effective from 1 December. HMRC said the move is "to reduce the cost of access to online publications during these challenging times" when schools are closed, and people are confined to their homes.
The legislation was introduced by statutory instrument which was laid on 30 April.
HMRC's guidance states that from 1 May zero rating applies to the supply or lending of electronic versions of the following:
- Books, booklets, brochures, pamphlets and leaflets.
- Newspapers, journals and periodicals.
- Children’s picture books and painting books.
The zero rate does not apply to publications which:
- are wholly or predominantly devoted to advertising; or
- consist wholly or predominantly of audio or video content.
The supply of an e-publication that is predominantly for completing remains standard rated, unless it is an electronic version of a printed book which is already zero rated, or an electronically supplied children’s picture or painting book which is now specifically zero rated by UK legislation.
The HMRC guidance contains comment on other areas, such as the supply of zero rated publications together with standard rated items and the resulting single/multiple supply issues. One glaring anomaly (at least to this keen choral singer) is that digital music manuscripts are left as standard rated. As the policy aim is the support of literacy, it seems odd to exclude musical literacy.
Suppliers of e-publications will need to update their systems very quickly to ensure the correct rate of VAT is being accounted for. As the government stated that this move is to reduce the price during the COVID-19 crisis, consumers will expect to see price reductions – which do not necessarily follow a VAT rate reduction, so pricing models are likely to need review.
Consumers currently receiving e-publications via annual subscription may have to wait for their VAT saving. E-publications are supplies of electronic services, not goods, and the time that tax becomes due is different. There is no comment on this in the guidance, but the normal time of supply rules would usually only allow for the application of the zero rate to subscriptions paid for on or after 1 May 2020.
However, suppliers can if they wish, adopt the special rules which apply on a change of rate. These may be used if a basic tax point (ie the date the e-publication is actually delivered) falls on one side of the change, and a tax point arising from receiving a payment or issuing an invoice falls on the other side. In that case the supplier can elect to account for VAT in accordance with the basic “delivery” tax point.
That means annual or other long term subscriptions paid for before 1 May can be apportioned and the zero rate applied to the remaining part of the subscription relating to e publications which will be delivered after 1 May. If a VAT invoice had been issued before 1 May, a credit note should be issued within 45 days to correct the VAT due. It is entirely the supplier’s decision whether or not to apply these rules, but as the zero rate was presented as a cost saving for consumers, suppliers may feel pressured into applying them.
Clubs and societies
This change will be welcome news for certain membership organisations, which are able to apportion membership subscriptions attributable to zero rated publications under ESC 3.35 for VAT purposes. This allows for an increased VAT deduction on costs, but up until now to obtain that benefit they had to continue to supply physical printed items and incur the cost of printing and delivery.
These organisations can now adopt digital publishing for all their publications which ought to deliver cost savings. They should consider the change of rate provisions where an electronic magazine or similar is already provided to members as part of their membership package, an also apply the zero rate to the relevant porportion of membership subscriptions paid after 1 May 2020.
HMRC has repeated its view that this change of VAT treatment does not apply retrospectively. However, the recent decision in the upper tier tribunal of News Corp UK & Ireland Ltd calls that into question.
Although HMRC has appealed that case, businesses can still consider making protective claims against the four year time limit for VAT previously paid.
This article has been updated with further information about subscriptions.
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Linda is an Assistant Director, VAT with Buzzacott in London and has over 30 years’ experience in VAT. She joined HM Customs and Excise (now HMRC) after University and moved into private practice in the 1980s. She has worked for BDO Stoy Hayward, Grant Thornton and PricewaterhouseCoopers ...