VAT: zero rating e-publications
Published 30 April 2020
© Crown copyright 2020
This publication is licensed under the terms of the Open Government Licence v3.0 except where otherwise stated. To view this licence, visit nationalarchives.gov.uk/doc/open-government-licence/version/3 or write to the Information Policy Team, The National Archives, Kew, London TW9 4DU, or email: psi@nationalarchives.gov.uk.
Where we have identified any third party copyright information you will need to obtain permission from the copyright holders concerned.
This publication is available at https://www.gov.uk/government/publications/vat-zero-rating-e-publications/vat-zero-rating-e-publications
Who is likely to be affected
Businesses that supply certain electronic publications, as well as businesses, organisations and members of the public that purchase those publications.
General description of the measure
The government announced at Budget, on 11 March 2020, that it intended to legislate to apply a permanent zero rate of VAT to supplies of certain electronic publications (‘e-publications’) with effect from 1 December 2020. The result would have been that supplies of e-books, e-newspapers, e-magazines and academic e-journals would have been entitled to the same VAT treatment as supplies of their physical counterparts from that date.
Policy objective
The objective of this measure is to support literacy and reading in all its forms. Following the outbreak of the coronavirus (COVID-19) pandemic and the need for people to stay at home, the government has decided to bring forward the implementation date to 1 May 2020 to reduce the cost of access to online publications during these challenging times when many people are confined to their homes and schools are closed.
Background to the measure
After the announcement on 11 March, the government made a further announcement on 30 April 2020 that it would bring forward the implementation date to 1 May 2020. As the government has decided to bring forward the implementation date of this measure, it has not been possible to consult in the time available.
Detailed proposal
Operative date
The measure will affect supplies of certain e-publications with effect from 1 May 2020.
Current law
Group 3 of Schedule 8 to the Value Added Tax Act 1994 (“Group 3”) provides for the zero rating of printed matter. Sections 30(4) and 96(9) of that Act give HM Treasury powers to make an order to amend the scope of Group 3 and the Notes to that Group.
The European Union (EU) vires for the extension of the zero rate to electronic publications are contained in Council Directive (EU) 2018/1713, which changed the scope of the EU’s optional reduced rate provisions. This Directive came into force in December 2018. Where member States (including the United Kingdom (UK) during the Transition Period) have a reduced rate (or an equivalent zero rate) for supplies of printed publications, it gives them the option to extend that reduced or zero rate to supplies of electronic versions of those publications. The UK has decided to exercise this option to extend its maintained zero rate to supplies of certain specified electronic publications.
Proposed revisions
Legislation will be introduced by statutory instrument to amend Group 3. Subject to certain exclusions (see next paragraph), the legislative changes will zero rate supplies of e-books, e-booklets, e-brochures, e-pamphlets, e-leaflets, e-newspapers, e-journals and e-periodicals (including magazines) as well as electronic versions of children’s picture and painting books.
The exclusions referred to are to e-publications that are wholly or predominantly devoted to advertising or to audio or video content. The exclusions for video content and audible music are necessary to comply with the vires in Council Directive (EU) 2018/1713. The sale of e-audio books continues to be standard rated in UK law in line with government policy.
Legislation was introduced in the Finance Act 2011 to counter avoidance schemes entered into by some businesses that artificially split supplies so that they could benefit from the zero rate for printed matter. The new legislation will ensure that businesses will not be able to enter into similar schemes when e-publications become zero rated.
Summary of impacts
Exchequer impact (£m)
| 2020 to 2021 | 2021 to 2022 | 2022 to 2023 | 2023 to 2024 | 2024 to 2025 | 2025 to 2026 | |
|---|---|---|---|---|---|---|
| Impact | - | - | - | - | - | - |
The Exchequer cost of the measure as announced at Budget to take effect from 1 December 2020 was set out in Table 2.1 of Budget 2020 and was certified by the Office for Budget Responsibility. More details can be found in the policy costings document published alongside Budget 2020.
The bringing forward of the implementation date from 1 December 2020 to 1 May 2020 is expected to decrease receipts in the year 2020 to 2021. The final costing will be subject to scrutiny by the Office for Budget Responsibility and will be set out at the next fiscal event.
Economic impact
This measure is not expected to have any significant macroeconomic impacts.
Impact on individuals, households and families
This measure will zero rate the supplies of certain e-publications with effect from 1 May 2020.
It will have a positive impact on individuals who purchase certain e-publications if businesses pass on this VAT saving. This would result in lower prices for individuals and support literacy and reading in all its forms.
Assuming the VAT saving is passed on to customers, it is tentatively estimated that the average VAT saving on the purchase of an e-book currently costing £2.00 will be around £0.33, the VAT saving on an average typical annual newspaper subscription will be around £25 and the VAT saving on an average annual magazine subscription will be around £20.
Customer experience for individuals is expected to stay broadly the same as it does not change how they interact with HMRC.
The measure is not expected to impact on family formation, stability or breakdown.
Equalities impacts
Children, including those from disadvantaged backgrounds, will benefit from a reduction in the price of e-publications. Research by the National Literacy Trust indicates that 1 in 4 pupils on free school meals say they read fiction digitally compared to 1 in 6 of their peers not eligible for free school meals and that over 45% of children prefer to read on an electronic device.
Readers with accessibility difficulties, who rely on large print sizes or find physical books difficult to hold, are also likely to be key beneficiaries of e-publication price reductions.
It is not anticipated that the measure will impact any other group with protected characteristics.
Impact on business including civil society organisations
This measure is expected to have a negligible impact on businesses that supply e-publications. These businesses will no longer be required to charge VAT at the standard rate on supplies of affected e-publications, which will become zero rated, but will continue to be able to recover input tax relating to these supplies.
One-off costs will include familiarisation with the new rules and could also include changing systems to account for VAT at the zero rate. Some businesses will need to consider whether the content of their e-publications is wholly or predominantly devoted to advertising or to audio or video content, in which case their supplies will not benefit from the zero rate. For most supplies, this is expected to be straightforward. However, there will be savings for businesses that are currently required to apportion income between zero rated printed matter and standard rated e-publications, which become zero rated. There are not expected to be any ongoing costs.
Customer experience is expected to stay broadly the same as this measure does not significantly change how businesses interact with HMRC. There is expected to be no impact on civil society organisations.
Operational impact (£m) (HMRC or other)
HMRC will incur negligible costs in implementing this change. Guidance on the change will be published on 1 May and this will be incorporated into VAT Notice 701/10 and the VBOOKS series of guidance by 31 July 2020.
Other impacts
It is anticipated that these changes will have a negligible environmental impact.
Other impacts have been considered and none have been identified.
Monitoring and evaluation
This measure will be kept under review through communication with affected taxpayer groups.
Further advice
If you have any questions about this change e-mail: epublications@hmrc.gov.uk.
Declaration
The Rt Hon Jesse Norman MP, Financial Secretary to the Treasury has read this tax information and impact note and is satisfied that, given the available evidence, it represents a reasonable view of the likely costs, benefits and impacts of the measure.