The taxpayer is the representative member of a VAT group that publishes well known newspapers, such as The Times, The Sunday Times, The Sun and The Sun on Sunday. The case concerns various digital versions of these ‘hard-copy’ newspapers and whether these are also zero rated. The taxpayer submitted a claim on the basis these were still ‘newspapers’ and zero rated under VATA 1994 Schedule 8 Group 3 Item 2 as ‘Newspapers, journals and periodicals.’
Are digital versions still newspapers?
The taxpayer argued that Item 2 should be interpreted purposively and the purpose of the provision was to promote literacy, the dissemination of information and democratic accountability. The taxpayer went on to argue that once legislation is enacted, it had to be kept up to date, including for technological advances, so that the provision is ‘always speaking’. The taxpayer raised a number of cases in support of its preferred VAT analysis, including the Harrier LLP FTT. Whilst accepting this concerned technical advances in printing, the taxpayer considered the correct approach was to identify the relevant purpose of the statutory provision and then test the supply by reference to its function and inherent characteristics. In its analysis, this will then establish whether the term used by Parliament applies to the technologically advanced product.
The FTT agreed with HMRC that Item 2 applied only to goods i.e. newsprint and not to digital newspapers, which are services. Looking at Group 3 ‘Books’ as a whole, the FTT concluded that the whole of Group 3 is confined to the supply of goods, except where services are specifically provided for in the notes. In particular, the FTT considered item 6 supportive of this conclusion as this zero rates ‘Covers, cases and other articles supplied with items 1 to 5 and not separately accounted for.’ The FTT noted that the later insertion of Note 2 in 2011 to counter Telewest type structures specifically states goods. The FTT concluded that it would be odd that digital magazines could fall within zero rating but outside such an anti-avoidance measure. The FTT also noted that VATA 1994 s30 authorises zero rating for both goods and services. However, the question as to whether a particular provision applies to goods and /or services must be analysed by reference to the wording of the items of each group. Therefore, whilst accepting that the digital additions serve the same general purposes as the newsprint editions, it is not possible to extend the zero rate to services.
The FTT concluded that applying a different VAT treatment (standard rating) to the digital editions of the titles from that applicable to the newsprint editions (zero rating) does not offend against the principle of fiscal neutrality. The FTT accepted that with the exception of The Sun Interactive App, the digital editions were similar to the newsprint editions from the point of view of the customer. However, the FTT did not consider that the principle of fiscal neutrality can extend the scope of zero rating from its original application to goods (i.e. newsprint) to services (i.e. digital editions).
Over the years, we have seen a number similar challenges being argued under EU law. All of these were unsuccessful as EU law excludes electronically supplied services from the scope of the reduced rate. EU legislation is of course being changed due to neutrality concerns. This current case was based on UK law, as our zero rating is based on our derogation to maintain existing rates under Article 110.