Market leading insight for tax experts
View online issue

Zero-rating for VAT: read all about it (digitally)

printer Mail

In News Corp UK & Ireland Ltd v HMRC [2019] UKUT 0404 (TCC), the question before the Upper Tribunal was essentially a simple one: is a ‘digital newspaper’ (specifically, digital versions of The Times, The Sunday Times, The Sun and The Sun on Sunday) nonetheless a ‘newspaper’ and thus zero-rated for VAT purposes? Or is that accolade restricted to the printed folding paper things of the kind that formerly emanated from Fleet Street?

Spoiler alert: News Corp won – digital newspapers can count as ‘newspapers’. But the case has an interest beyond the immediate decision.

In 1973, when the UK joined (what became) the EU, it was permitted (as a temporary and transitional measure) to apply zero-rating to certain goods and services that had up to that time been exempt from purchase tax (but not to further extend the scope of such zero-rating). In most cases, that temporary arrangement continues to endure to this day. That is the background to the zero-rating in VATA 1994 Sch 8 Group 3 for (inter alia) ‘newspapers, journals and periodicals’.

HMRC has historically held the line that Group 3 applies to physical goods: it has resisted the argument that it applies to ‘digital newspapers’. Such things, HMRC says, are not ‘newspapers’ within the meaning of Group 3: they are services and are standard rated.

The First-tier Tribunal (FTT) had agreed with HMRC (see [2018] UKFTT 129 (TC)). News Corp appealed to the Upper Tribunal (UT).

The FTT had accepted that, despite some minor differences in functionality, ‘the content of the digital and newsprint editions was indeed fundamentally the same or very similar’. But what was fatal to News Corp’s case was that (in the view of the FTT) the zero-rating in Group 3 applied only to goods. It was plain (and not in dispute) that the supply of an electronic version of a newspaper was treated for VAT purposes as the supply of a service. It was therefore not capable of falling within Group 3 and had to be standard rated.

The UT disagreed. There was nothing in Group 3, properly interpreted, to indicate that it applied only to goods. What mattered was not whether a digital newspaper was a supply of goods or of a service, but whether it met the description of ‘newspaper’.

In making that judgment, one had to take into account the ‘always speaking’ doctrine of statutory interpretation – that is, broadly, ‘whether the digital versions, with the characteristics found by the FTT, fulfil the legislative purpose of the statutory provision.’ The UT noted, citing Hansard, that that purpose was ‘to promote literacy, the dissemination of knowledge and democratic accountability by having informed public debate’ (which is marginally easier at first glance, perhaps, to see how this applies to The Times than to The Sun!), though it would also be necessary to show that the service under consideration shared the essential characteristics of a ‘newspaper’ such as being edition based and containing curated news.

Despite HMRC’s imprecations to the contrary, the UT found no fault with the FTT’s finding that the digital editions ‘were essentially, when the evidence was viewed in the round, the same as or very similar to the newsprint editions’. This encompassed findings that:

  • the digital versions were edition-based publications;
  • they had similar characteristics to the print versions;
  • the content was fundamentally the same or very similar;
  • the updates to the digital versions were relatively minor; and
  • the additional content which could not be provided in newsprint ‘was a relatively minor aspect of those digital  editions.’

The UT therefore concluded that the digital editions not only fulfilled the legislative purpose of zero-rating but also had the essential characteristics of a ‘newspaper’. They were therefore ‘newspapers’ within the meaning of Group 3 and were zero-rated.

Group 3, as we have hinted, is not restricted to newspapers. Other items in Group 3 include maps, charts, booklets, brochures, leaflets and, pre-eminently, books. If, as the UT tells us, Group 3 zero-rating is not limited to physical printed matter, where does that leave e-books? One must assume that if an electronic service that meets the essential characteristics of a newspaper is a ‘newspaper’, it must follow that an electronic service that shares the essential characteristics of a book is a ‘book’. So, what are those characteristics? Which, if any e-books are zero-rated?

We predict that there are further chapters to come.