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Markel Tax

11 Mar 2020

Budget 2020: VAT formally withdrawn from e-publications

The Chancellor announced in Budget 2020 that supplies of digital publications would no longer be standard-rated with effect from 1 December 2020. 
 
HMRC’s current policy is that the supply of printed publications is zero-rated, but that the supply of the same content by digital means is a standard-rated service.  This will change.  Stating that it wished to boost learning and reading, the government announced that VAT will no longer be chargeable on supplies of publications supplied electronically.  This will come into effect on 1 December 2020. 
 
However, this measure falls within an already complex background as we have previously reported in an article, in a webinar, and more recently here too. 
 
A decision by the Upper Tribunal on 24 December 2019 ruled that supplies of electronic literature are, and always have been, zero-rated.  This decision is under appeal by HMRC who have stated their policy that such supplies are standard-rated has not changed.  This situation has led to confusion, hesitation and potentially a loss of VAT for taxpayers.  What should affected parties do, and what should they do in light of the December 2020 rule change? 
If HMRC wins its appeal and e-publications are and have always been standard-rated, 1 December 2020 will be the first date that zero-rating can be applied to such supplies. 
 
If, however, HMRC loses its appeal, e-publications are and have always been zero-rated.  Not only should businesses be zero-rating their supplies immediately, but claims should be made for VAT overpaid in the past.  In this case, the December 2020 rule change will have no effect as the zero-rating will already be effective at that date.  This will affect purchasers and suppliers of e-publications, who should both be reviewing their position and taking action now.  
  • Purchasers unable to recover all their input tax should consider making VAT claims at the earliest opportunity.  This will include banks, insurers, financial advisers, educational establishments, charities, health and welfare providers.  Even individuals should think about making claims for VAT overpaid in the past, including those buying e-books and members of organisations receiving digital publications. 
  • Suppliers of e-publications should also consider how to handle VAT claims. Timing will be an issue as there are time limits which will affect how much VAT they can recover if they do not act promptly.  The fact that HMRC has refused to accept the Upper Tribunal’s decision does not mean that the supplier should wait for the final outcome.  We are already receiving queries on our helplines requesting assistance with this issue which will affect publishers and any party charging for digital publications such as membership organisations. 

 Finally, it might have raised a few eyebrows that the VAT law is being changed a month before Brexit is scheduled.  As VAT is a European tax, the UK cannot unilaterally change its VAT rules until after Brexit.  So how can HMRC change its VAT laws like this before 31 December 2020?  The answer is that, in 2018, the EU permitted EU member states to tax the supply of e-publications at the same rate of VAT as the printed equivalents.

However, the UK did not take advantage of this permission and the supply of content electronically, according to HMRC, has and will remain standard-rated, until 1 December 2020.  Why the Chancellor would delay the boost to learning and reading is unclear, but better late than never!

For assistance with this issue or with any VAT queries, please contact Kevin Hall at Markel Tax on 020 3815 8999. 

Next article in series

11 Mar 2020

Budget 2020: First thoughts