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VAT: Zero rate on digital publications

There were no VAT increases in Rishi Sunak’s first Budget, but there were two VAT reductions, and a number of consultations were announced.

12th Mar 2020
Independent VAT Consultant
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In association with
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VAT budget

The 2020 Budget produced two reductions in VAT rates:

“Tampon tax”

The VAT rate on women’s sanitary products will be reduced from 5% to zero from 1 January 2021. This is the result of a long campaign and it will apparently save the average woman £40 in her lifetime. It will be interesting to see the boundaries of the zero rating as there are many necessary incontinence products for both men and women which are not zero rated. 

“Reading tax”

The level of VAT give-away here is much larger: supplies of e-books, digital magazines, e-newspapers and academic e-journals will be zero-rated from 1 December 2020 in the same way as printed material. The Chancellor confirmed the start date was based on the fact that it was “just in time for Christmas.”

Digital reading

HMRC suffered a defeat in the Upper Tribunal (UT) about whether e-newspapers supplied by News Corp and Ireland Ltd (UT/2018/0065) qualified for zero-rating in the same way as printed newspapers. The court recognised the doctrine of ‘always speaking’ to recognise the development of a new presentation of a product. There was no such thing as an electronic newspaper when the zero-rate schedule was introduced in 1973, so the legislation should reflect technological changes.

HMRC announced that it is appealing against the UT decision to the Court of Appeal in Revenue and Customs Brief 01/2020, but I wonder if that appeal will now go ahead.

Practical effects       

The new legislation will end the debate about whether an electronic newspaper has the same features as a printed newspaper, as they will carry the same rate of VAT. But it is unclear whether the zero-rate will apply to audio books, possibly not. The other issue is whether e-suppliers will pass on the VAT saving by reducing prices charged to consumers – hopefully this will be the case. There will be a consultation on the details of the legislation ahead of the rate change.

Agricultural flat rate scheme (AFRS)

This agricultural flat rate scheme (AFRS) is especially for farmers. The entry and exit rules for this scheme are being brought in line with those for the more familiar small business flat rate scheme:

  • businesses can join the AFRS when their annual turnover for farming related activities is below £150,000
  • businesses must notify HMRC once their annual turnover for farming related activities exceeds £230,000, to be deregistered from the scheme and register for VAT instead

These changes will apply from 1 January 2021.  Businesses with turnover in excess of £85,000 for non-farming related activities will still be required to register for VAT and will be ineligible for the AFRS.

VAT and Brexit

There are a number of VAT changes and consultations in the pipeline prompted by the exit of the UK from the EU single market and customs union, which include:

  • postponed VAT accounting on imported goods – from 1 January 2021.
  • VAT treatment of goods carried across borders by passengers for personal use.
  • VAT treatment of goods sold in the UK from overseas sellers including low value imporst and goods warehoused in the UK.
  • VAT on financial services.

Registration threshold

There was no mention of the VAT registration threshold because this will be frozen at £85,000 until April 2022 at the earliest, as confirmed by the former Chancellor Philip Hammond two years ago. If I was a betting man, I would have a flutter that this registration threshold will be maintained in perpetuity – a stealth tax so to speak.

One-way traffic

Will we ever again see a Budget that increases the VAT yield, rather than reduces it? Or do serving Chancellors still remember the disastrous after-effects of the famous ‘pasty tax budget’ in 2012, when George Osborne tried to increase standard-rated supplies of hot food, caravans, church repairs, storage and other things and came a cropper?

Budget

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