Policy paper

VAT liability of digital publications — update on litigation in News Corp and Ireland Ltd

Published 11 March 2021

Purpose of this brief

This brief, which follows on from Revenue and Customs Brief 1 (2020), gives an update on the VAT treatment of supplies of digital newspapers and other digital publications before 1 May 2020. This follows the Court of Appeal decision in News Corp UK and Ireland Ltd ((2021) EWCA Civ 91). It has no impact on the Government’s introduction of a new zero rate for supplies of certain e-publications (including e-newspapers), which came into effect from 1 May 2020.

It also explains how organisations can submit claims for overpaid VAT based on the Upper Tribunal decision (UT/2018/0046) and protect their position until the litigation in this case has concluded, if they want to.

Who needs to read this

Organisations that make supplies of digital publications and their advisers.

Background

Supplies of newspapers are zero rated under UK legislation (the relevant provision is Item 2 of Group 3 of Schedule 8 to the Value Added Tax Act 1994). This legislation has been in place since VAT was introduced into the UK in 1973.

Before the introduction of a new zero rate for supplies of certain e-publications on 1 May 2020, HMRC’s policy, based on UK legislation, was that the zero rate only applied to the sale of printed matter (that is, supplies of goods). Therefore, before 1 May 2020, the sale of digital newspapers (which are services) has always been standard rated.

News Corp challenged HMRC’s policy and submitted claims for VAT, which it claimed had been overpaid on income it received for granting access to digital versions of several of its publications. HMRC rejected these claims on the basis that the VAT had been correctly accounted for at the standard rate. Following a recent decision at the Court of Appeal, HMRCs position that the VAT had been correctly accounted for at the standard rate, has been upheld.

Upper Tribunal decision

The Upper Tribunal had previously found that the supply of the digital newspapers in dispute was zero rated for the following reasons:

• Group 3 of Schedule 8 is not limited to goods and can include services (such as digital publications)
• the News Corp digital newspapers were essentially the same or at least very similar to the corresponding printed newspapers, fulfilling the same legislative purpose, and falling within the same category of items (or ‘genus of facts’) that UK legislation has always zero rated
• the domestic legal principle known as the ‘always speaking’ doctrine is engaged (essentially, that legislation in certain circumstances should reflect and keep up to date with technological advances)
• the supply of the digital newspapers in dispute fell to be zero rated within Item 2 (notwithstanding that they did not exist when the zero rates were introduced)

The Court of Appeal decision

In its judgment of 28 January 2021, the Court of Appeal overturned the Upper Tribunal decision finding that:

• the clear legislative intent of the wording in Group 3 of Schedule 8 is to include tangible items only (goods) and to exclude non-tangible items (services)
• supplies of digital newspapers are not in the same genus of facts as the tangible items expressly included in the wording of Item 2 of Group 3
• the Upper Tribunal impermissibly elevated the always speaking doctrine above the requirement for a strict construction of the wording in Item 2 of Group 3
• the Upper Tribunal, having concluded that printed and digital newspapers were in the same genus of facts and fulfilled the same social purpose irrespective of their form, in effect asked what Parliament would have done faced with the invention of a digital newspaper that was never in contemplation and supplied the answer itself, which was impermissible
• the Court of Appeal held that the digital news services were simply not within the zero-rating provisions and the scope of those provisions cannot be extended by the application of a principle of interpretation, such as fiscal neutrality
• to read the term newspapers in Item 2 of Group 3 as including digital newspapers would amount to an impermissible expansion of the zero rate provision in Item 2

While the Court of Appeal decision supports HMRC’s policy, News Corp has sought permission to appeal the decision to the Supreme Court. Therefore, organisations may want to protect their position by making claims for overpaid VAT based on the Upper Tribunal decision until such time as the litigation has concluded.

HMRC policy in relation to digital publications

There have been no changes in HMRC’s policy which, in line with the Court of Appeal judgment, continues to be that supplies of digital publications before 1 May 2020 are standard rated.

Rejection of claims made for supplies of digital publications

As HMRC’s policy has not changed, any claims made in reliance of the Upper Tribunal decision in News Corp will be rejected.

Where an organisation considers that the Upper Tribunal decision in News Corp applies to its own supplies of digital publications it should provide HMRC with full details in writing, including:

• a full description of the supplies for which the claim is being made and which item of Group 3 of Schedule 8 the supplies fall
• clear reasons why it is considered that the claim should be treated in the same way as the supplies in the News Corp Upper Tribunal decision
• a breakdown of the amounts of overpaid VAT being claimed by prescribed accounting period and the method by which they have been calculated

A claimant must be able to give, on request, copies of documentation used in the calculation of a claim. If insufficient information is given in support of a claim it will be rejected and the organisation will need to resubmit its claim with the requisite information.

As HMRC’s policy continues to be that supplies of digital publications are standard rated HMRC will issue a decision to reject the claim. In order to protect its right to claim overpaid VAT an organisation will be at liberty to appeal HMRC’s decision.

All claims will be subject to the 4-year time limit in section 80(4) of the Value Added Tax Act 1994. Once the litigation in News Corp has concluded, appeals will be considered in line with normal procedures. They may also be subject to consideration of unjust enrichment.