VAT charges on digital versions of newspapers overturned

The decision by the UK's upper tax tribunal, published late last year, means digital versions of The Times, The Sunday Times, The Sun and The Sun on Sunday published over two periods spanning between September 2010 and 4 December 2016 benefit from a zero-rating for VAT purposes.

The decision applies to the e-reader, tablet, website and smartphone editions of the printed newspapers, and also encompasses the digital Scottish editions and other additional content to be found in the digital versions of the print titles.

News Corp UK & Ireland, the publisher of those titles, previously lost the first round of its legal battle with HM Revenue & Customs (HMRC) over the VAT treatment of the digital versions of the papers before the UK's first-tier tax tribunal in March 2018.

The dispute centred on the application of the EU's Principal VAT Directive of 2006 and the interpretation of UK tax laws dating back nearly 50 years. In late 2018 the Directive was updated to specifically permit the zero-rating of electronic versions of newspapers for VAT purposes, but the upper tribunal said the change in the law was not relevant to resolving the case before it.

The Principal VAT Directive of 2006 provides scope to EU member states to apply reduced rates of VAT to certain goods or services if the EU country already applied the lower rate prior to 1 January 1991, providing that the lower rate is in accordance with EU law and was "adopted for clearly defined social reasons and for the benefit of the final consumer".

In 1972, shortly before the UK joined the EU, the UK parliament legislated to specifically provide for the zero-rating of 'newspapers, journals and periodicals', among other listed items, and the law has not materially changed since. The zero-rating of newspapers is now reflected in the UK's VAT Act 1994 (VATA).

The first-tier tax tribunal determined that the VAT legislation which permitted a zero rating for printed newspapers applied only to the supply of goods and not to the supply of services, which News Corp accepted covered the supply of digital versions of its newspapers. However, the upper tribunal rejected the bases on which the first-tier tribunal had reached its decision.

In reaching its decision, the upper tribunal assessed what parliament's purpose was in setting the zero-rating of newspapers in 1972, and considered it was parliament's purpose that the term 'newspapers' be construed as including the digital versions that have come into existence since 1991.

"Where a particular item [listed for zero-rating for VAT purposes] existed only in the form of 'goods' in 1972, it was not its characterisation as 'goods' that was the defining, or even a relevant, factor in its inclusion [on that list]," the upper tribunal said.

In reaching that view, the upper tribunal considered that digital newspapers "are within the legislative purpose as expressed in VATA as a consequence of the characteristics they share with the (physical) newspapers that existed at the time – in other words, because they fall within the same 'genus' of facts to which the expressed policy has been formulated".

The upper tribunal rejected arguments raised by HMRC which concerned differences between the print and digital versions of the newspapers that it said the first-tier tribunal should have more strongly factored in to its decision. HMRC had claimed that the digital versions of the newspapers were not edition-based publications like the print versions, and were instead resembled rolling news services, and also that there was different functionality in the digital versions, including through the availability of a search function, video clips and interactive puzzles.

HMRC also argued that the move by EU law makers in 2018 to update EU VAT law to permit the zero-rating of newspapers when supplied electronically showed that such zero-rating was not permitted prior to then. However, the upper tribunal said the point was not relevant to determining the "construction of UK domestic legislation dating from 1972".