Could you be due a VAT refund on the sale of e-publications?
If you are a charity or membership organisation which has applied VAT to sales of e-publications, including those supplied as part of a subscription or membership fee, you may be interested in a recent VAT case which could result in a refund of VAT and/or a reduction in future VAT liabilities.
Dated: 22 April 2020 Author: Terri Bruce, Indirect Tax for SMEs and Not for Profits Director
VAT change announced in Budget
The Budget which was held on 11 March now seems eons ago; events have moved so fast that people may have overlooked the fact that it happened at all.
One interesting change which was announced by Chancellor, Rishi Sunak, was that VAT would no longer be charged on e-books and online newspapers, magazines and journals with effect from 1 December 2020. The new legislation will make it clear that e-books, e-newspapers, e-magazines, e-journals, etc. are entitled to the same VAT treatment as their physical counterparts.
The Chancellor’s announcement followed the Upper Tribunal (“UTT”) decision in the case of News Corp.
News Corp Decision
For many years, businesses have campaigned against the addition of VAT to online publications on the basis that the printed equivalent was eligible for zero-rating which was contrary to the concept of fiscal neutrality.
The Upper Tribunal decision in the case of News Corp followed the “always speaking” doctrine which is designed to ensure that the law moves with the times. The court decided that the electronic version of the newspaper and the printed copy had the same purpose; to promote literacy, the dissemination of knowledge and democratic accountability by having informed public debate. Therefore, as the electronic version shared the essential characteristics of a “newspaper”, zero-rating should apply.
Following the UTT decision, HMRC issued Revenue and Customs Brief 1 (2020) (dated 19 February 2020) in which they stated that “there have been no changes in HMRC’s policy, which continues to be that supplies of digital publications are standard rated”.
HMRC has stated that any claims made following the decision in News Corp will be rejected. However, where an organisation considers that the decision in News Corp applies it can submit a claim in order to protect its right to claim overpaid VAT.
HMRC has appealed this decision and so it is likely that litigation may rumble on for some time, despite the Budget announcement. However, organisations which supply digital publications may wish to consider preparing a protective claim. It is expected that HMRC will apply the usual ‘unjust enrichment’ rule to any claim and is also unlikely to pay out on claims until any appeal is resolved. Organisations which have purchased digital services but that have not fully recovered the related VAT may now wish to try to reclaim that VAT from suppliers.
Action now required
- If you have charged VAT on the supply of e-publications in the past, there may be an opportunity to both claim a refund of VAT paid in the past and change VAT treatment going for future supplies.
- If you are a membership organisation which provide e-newsletters to members or subscribers you should review your income apportionment. This will create a benefit going forwards but there may also be an opportunity for historic refunds.
- If you have been charged VAT on e-publications that you have received, you may wish to seek a refund from your supplier.