Detailed guidance on VAT liability of supplies of e-publications

4 August 2020

New guidance has been incorporated into VAT Notice 701/10 to provide guidance on the VAT liability of supplies of certain electronic publications (e-publications) that became zero-rated from 1 May 2020. A useful BUFDG publication on the topic, can be read here. More detailed guidance on VAT and e-publications is also now available in VBOOKS8490. Relevant extracts are reproduced below.

This follows the publication of the following documents at the end BUFDG E-publications August 2020of April, as reported on the CTG website here:

Zero rating books and printed matter (VAT Notice 701/10)

9. E-publications

With effect from 1 May 2020, the publications falling in items 1 to 3 of Group 3 (see section 1.2) when supplied electronically are zero-rated unless they are wholly or predominantly devoted to advertising, audio or video content. The following section provides guidance on the supplies of e-publications with more detailed guidance available in VBOOKS8490.

9.1 Determining whether an e-publication is one of the publications listed above

The terms e-books, e-newspapers, e-magazines, e-journals etc. are not defined in legislation and so they take their ordinary and everyday meaning. To determine whether an e-publication falls within the zero rate it is necessary to consider its characteristics and purpose. Guidance can be found in section 3 – although some of the physical characteristics that apply to printed matter will not apply to e-publications.

In many cases, it will be clear whether or not the supply of an e-publication qualifies for the zero rate by considering its characteristics and purpose without carrying out a detailed assessment. For example, an e-publication that is subject to editorial control, focused on delivering news and providing analysis and commentary on news stories is likely to be a zero-rated newspaper. This would apply to online newspapers that are updated periodically and is not limited to static digital versions of printed newspapers.

However, where an e-publication has no clear purpose, it will be necessary to consider the characteristics and purposes of the publication in more detail and to make an assessment based on the facts in each case.

9.2 The meaning of “wholly or predominantly devoted to advertising, audio or video content”

The meaning of the word “wholly” is self-evident. The word “predominantly” in this context means more than half. Therefore, if more than half of an e-publication is devoted to advertising, audio and/or video content, its supply will be standard rated for VAT purposes.

9.3 Determining whether an e-publication is “predominantly” devoted to advertising, audio or video content

Determining whether an e-publication is predominantly devoted to advertising, audio or video content in many cases will be resolved by considering the purpose of the product. However, where a product has no clear purpose, businesses will need to consider all the facts and circumstances and objectively assess the relative mix of content.

In some cases, it may be appropriate to measure different types of content by performing a numerical calculation. For instance, comparing the number of news articles with the number of advertisements and video clips or by carrying out a word count or by looking at the amount of space taken up.

As there is no determinative test to establish whether an e-publication is predominantly devoted to advertising, audio and/or video content, HMRC will accept a fair and reasonable assessment based on a sensible method.

9.4 E-publications that do not exist in printed form

The supply of an e-publication that does not exist in printed form will qualify for the zero rate provided it is one of the publications in section 9.1.

9.5 E-audiobooks

The extension to the zero rate applies only to books that were already zero-rated under UK law, when they are supplied electronically. As such, zero rating is limited to electronic equivalents of books that can be read or looked at. This includes books that are supplied electronically but which are not sold in printed form. Supplies of audiobooks remain taxable at the standard rate whether supplied in a physical or digital format.

9.6 VAT liability of an e-publication that is for completing as opposed to being read

The supply of an e-publication that is predominantly for completing (for example, an electronic diary) is standard rated, unless it is an electronic version of a printed book whose supply is already included within the zero rate or an electronically supplied children’s picture or painting book which is specifically zero-rated by UK legislation.

9.7 Types of payments for accessing e-publications

There are different payment models for accessing e-publications – for example, pay per day, pay per publication and traditional subscription models. Provided that the supply of the e-publication qualifies for the zero rate, the form of payment (or consideration) may be in any form.

9.8 Subscriptions to access multiple e-publications

Where a business charges a fee to its customers to access a number of zero-rated e-publications, the supply will be zero-rated. Where a charge is made to access a mixture of standard and zero-rated e-publications, it will be necessary to apportion the fee between the standard and zero-rated elements on a fair and reasonable basis – refer to Notice 700 section 31

9.9 VAT liability of the sale of e-book readers

E-book readers are one form of hardware to which e-books can be downloaded before being read but are not in themselves e-books. Therefore, supplies of e-book readers are standard rated (unless they meet certain conditions and are sold as part of an assistive technology system – read VAT Notice 701/7 for further information).

9.10 VAT liability of the sale of software for accessing e-publications

Software (for example, an “app”) is used to access e-publications but is not in itself an e-publication. Therefore, supplies of such software are standard rated.

9.11 Lending of zero-rated e-publications

The lending of any zero-rated e-publications for a charge (for example, by a library) is zero-rated.

9.12 Supply of intellectual property in e-publications

Supplies of intellectual property, even if they are supplied electronically, are not supplies of e-publications and are always standard rated. Electronically supplied plans or drawings for industrial, architectural, engineering, commercial or similar purposes are specifically excluded in the legislation.

9.13 Supplies of standalone digital music manuscripts, maps and charts

The objective of the change to zero rate certain e-publications is to support literacy and reading in all of its forms, allowing e-books, e-newspapers, e-magazines and academic e-journals to be entitled to the same VAT treatment as their physical counterparts. The scope of the measure does therefore allow for the zero rating of supplies of music manuscripts, maps and charts when they are in the form of one of the publications listed in section 9.1. However, this does not cover standalone items described in items 4 and 5 of Group 3 of Schedule 8 VATA such as digital music manuscripts, maps or charts.

9.14 Treatment of supplies of e-publications that span 1 May 2020

The zero rate for e-publications applies to supplies made on or after 1 May 2020. In cases where there has been a payment for qualifying e-publications prior to 1 May and the supply is received on or after 1 May, businesses can opt to account for VAT at the date on which the supply of the service takes place instead of the date when the payment is received – and so apply the zero rate. However, where a business has issued a VAT invoice showing VAT at 20%, it will need to issue a credit note for the over-charged VAT. If the business has not issued a VAT invoice, it can simply refund the 20% VAT.

E-Publications – HMRC Internal Manuals

VBOOKS8500: Introduction

The government announced at Budget, on 11 March 2020, that it intended to legislate to apply a zero rate of VAT to the supply of certain e-publications with effect from 1 December 2020. As a result, supplies of e-books, e-newspapers, e-magazines and academic e-journals would be entitled to the same VAT treatment as supplies of their physical counterparts. The objective was to support literacy and reading in all of its forms.

Following the outbreak of the Coronavirus (COVID-19) pandemic, the government brought forward the implementation date to 1 May 2020. This was to reduce the cost of access to these publications during these challenging times when many people were confined to their homes and schools were closed.

VBOOKS8501: Legal vires for these changes

The EU vires for these changes are contained in Council Directive (EU) 2018/1713 which gives EU member States (including the UK during the Transition Period) that have a zero rate for printed matter the option of extending that VAT zero rate to the electronic equivalent of the physical products that were zero rated on 1 January 2017.

The UK vires for these changes are contained in sections 30(4) and 96(9) of the Value Added Tax Act 1994 (“the Act”). These give HM Treasury the power to make an order to amend the scope of Group 3 of Schedule 8 to the Act (“Group 3”), which contains the legal provisions relating to the UK’s VAT zero rate for the supply of printed matter and e-publications.

VBOOKS8502: Interaction with News Corp litigation

The zero rate for certain e-publications applies to supplies made on or after 1 May 2020. Notwithstanding the Upper Tribunal’s decision in News Corp, HMRC’s policy continues to be that supplies of all e-publications are properly standard rated until that date. HMRC is appealing the Upper Tribunal decision to the Court of Appeal – further information can be found in Revenue and Customs Brief 1 (2020): VAT liability of digital publications – Upper Tribunal in News Corp and Ireland Ltd.

VBOOKS8503: Supplies of e-publications that will be zero rated from 1 May 2020

The Value Added Tax (Extension of Zero-Rating to Electronically Supplied Books etc.) (Coronavirus) Order 2020 SI 2020/459 came into force on 1 May 2020. It zero rates the publications in items 1 to 3 of Group 3 (listed below) when they are supplied electronically, unless they are wholly or predominantly devoted to advertising, audio or video content:

books;
booklets;
brochures;
pamphlets;
leaflets;
newspapers;
journals and periodicals (which include magazines); and
children’s picture and painting books.

VBOOKS8504: Determining whether an e-publication is one of the publications listed above

The terms e-books, e-newspapers, e-magazines and academic e-journals are not defined in EU or UK legislation. These terms therefore take their ordinary and everyday meaning. To determine whether an e-publication falls within the list above it is necessary to consider the characteristics and purpose of the publication.

Guidance on the characteristics and purpose of printed matter can be found in VBOOKS: 3100 (Books and booklets), 3200 (Brochures and pamphlets), 3300 (leaflets), 3400 (Newspapers), 3500 (Journals and periodicals) and 3600 (Children’s picture books and painting books) – although some of the physical characteristics that apply to printed matter will not apply to e-publications.

In many cases, it will be clear whether or not the supply of an e-publication qualifies for the zero rate by considering its characteristics and purpose without carrying out a detailed assessment.

For example, an e-publication that is subject to editorial control, focussed on delivering news and providing analysis and commentary on news stories is likely to be a zero rated newspaper. This would apply to online newspapers that are updated periodically and is not limited to static digital versions of printed newspapers.

However, where an e-publication has no clear purpose, it will be necessary for businesses to consider the characteristics and purpose of the publication in more detail and to make an assessment based on the facts in each case.

VBOOKS8505 E-publications that do not exist in printed form

The supply of an e-publication that does not exist in printed form will qualify for the zero rate provided it is one of the publications listed in VBOOKS8503.

VBOOKS8506 The meaning of “wholly or predominantly devoted to advertising, audio or video content”

Council Directive (EU) 2018/1713 specifically excludes e-publications that are wholly or predominantly devoted to advertising, audio or video content from the zero rate.

The meaning of the word “wholly” is self-evident. The word “predominantly” in this context means more than half. Therefore, if more than half of an e-publication is devoted to advertising, audio and / or video content, its supply will be standard rated for VAT purposes.

VBOOKS8507 Determining whether an e-publication is “predominantly” devoted to advertising, audio or video content

Determining whether an e-publication is predominantly devoted to advertising, audio or video content in many cases will be clear by considering the purpose of the product (and as part of the assessment referred to in VBOOKS8504).

For example, an e-publication that is focussed on delivering news and providing analysis and commentary on news stories is likely to be a zero rated newspaper. On the other hand, an e-publication that is focussed on encouraging people to buy products and contains few news stories is likely to be an e-publication predominantly devoted to advertising and therefore standard rated. In these sorts of cases there may be no need to carry out calculations to determine the percentages of news content, advertising content, video content etc.

However, where a product has no clear purpose, businesses will need to consider all the facts and circumstances and objectively assess the relative mix of content. In some cases, it may be appropriate to measure different types of content by performing a numerical calculation. For instance, comparing the number of news articles with the number of advertisements and video clips or by carrying out a word count or by looking at the amount of space taken up.

There may be other ways to determine if an e-publication can be zero rated, for example by considering the cost to the business of providing different content.

Example 1: An auction house sells e-brochures containing information about lots in a forthcoming auction. Since the e-brochure is predominantly advertising, its sale is standard rated.
Example 2: A business supplies an e-audiobook that is narrated by a well-known actor. It is designed only to be listened to. Since this e-audiobook is wholly devoted to audio content, its supply will be standard rated for VAT purposes.
Example 3: A business supplies an e-book that incorporates an audio function which enables the reader to listen to the book being read by a synthetic voice when they are tired of reading. The e-book is designed primarily to be read, and the audio function is incidental. Since this e-book is not wholly or predominantly devoted to audio content, its supply will be zero rated for VAT purposes.
Example 4: A business offers its customers access, by subscription, to an e-magazine which consists of a range of articles about current affairs, the arts and various feature articles. It also includes advertising and video content related to the articles, but the e-magazine is primarily sold and purchased for its articles. Since, this e-magazine is not wholly or predominantly devoted to advertising and / or video content, its supply will be zero rated for VAT purposes.

VBOOKS8508 Meaning of “supplied electronically”

The term “supplied electronically” is not defined in legislation. It falls to be interpreted in accordance with its generally accepted meaning and includes supplies made over the internet and by e-mail.

VBOOKS8509 E-audiobooks

The extension to the zero rate applies only to books that were already zero rated under UK law, when they are supplied electronically. As such, zero rating is limited to electronic equivalents of books that can be read or looked at. This includes books that are supplied electronically but which are not sold in printed form. Supplies of audiobooks remain taxable at the standard rate whether supplied in a physical or digital format.

VBOOKS8510 VAT liability of an e-publication that is for completing as opposed to being read

VBOOKS8511 Types of payments for accessing e-publications

VBOOKS8512 Subscriptions to access multiple e-publications

Where a business charges a fee to its customers to access a number of zero rated e-publications, the supply will be zero rated. Where a charge is made to access a mixture of standard and zero rated e-publications, it will be necessary to apportion the fee between the standard and zero rated elements on a fair and reasonable basis – refer to Public Notice 700 section 31.

VBOOKS8513 VAT liability of the sale of e-book readers

VBOOKS8514 VAT liability of the sale of software for accessing e-publications

Software (e.g. an “app”) is used to access e-publications but is not in itself an e-publication. Therefore, supplies of such software are standard rated.

VBOOKS8515 Determining the VAT liability when a zero rated e-publication is supplied together with another supply

When a zero rated e-publication is supplied together with another supply, it is necessary to determine whether the supplier is making a single supply or multiple supplies, in line with the principles established by the European Court of Justice in Card Protection Plan and subsequent decisions

There is a single supply where one element of the supply is the principal element to which all other elements are ancillary. An ancillary element does not constitute an aim in itself for the customer but is a means of better enjoying the principal supply. Indicators of a single supply include:

a single price;
the supply is advertised as a package;
the components are not available separately;
the components are supplied at the same time; and
the customer perceives that what they are getting is a single supply.

There are multiple supplies where one or more element is distinct and independent. Indicators of more than one supply taking place include:

separate pricing or invoicing;
the items are available separately;
there is a time differential between parts of the supply;
elements of the supply are not inter-dependent or connected.

Further information can be found in VATSC11100.

The three most common outcomes if a zero rated e-publication is supplied with another supply are:

a single zero rated supply of e-publications (or two separate zero rated supplies);
a single standard rated supply to which the supply of the e-publication is ancillary; or
two separate supplies: one zero rated and the other standard rated.

Example 5: A business offers its customers access, by subscription, to an e-newspaper and a printed newspaper. Since the e-newspaper and printed newspaper are both zero rated, the subscription will be zero rated for VAT purposes.
Example 6: A business offers its customers access, for a subscription, to video games along with an e-magazine with commentary on those games. The main supply is the video games and the accompanying magazine is an ancillary supply as it is a better means of enjoying the games. Therefore, as video games are specifically excluded from the zero rate, there is a single standard rated supply of video games within which the supply of the magazine is subsumed.
Example 7: A business offers to sell an e-audio book and a printed book at a discounted price. Since both products are available to be purchased separately and the elements of the supplies are not interdependent, there are two separate supplies: one of a standard rated audio book and the other of a zero rated book.

VBOOKS8516 Lending of zero rated e-publications

The lending of any zero rated e-publications for a charge (e.g. by a library) is zero rated.

VBOOKS8517 Supply of intellectual property in e-publication

VBOOKS8518 Anti-avoidance rules that counter supply splitting

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 which introduces these changes ensures that businesses will not be able to enter into similar schemes when supplies of certain e-publications become zero rated.

VBOOKS8519 Supplies of standalone digital music manuscripts, maps and charts etc

The objective of the change to zero rate certain e-publications is to support literacy and reading in all of its forms, allowing e-books, e-newspapers, e-magazines and academic e-journals to be entitled to the same VAT treatment as their physical counterparts. The scope of the measure does therefore allow for the zero rating of supplies of music manuscripts, maps and charts when they are in the form of one of the publications listed in VBOOKS8503 above. However, this does not cover standalone items described in items 4 and 5 of Group 3 of Schedule 1 such as digital music manuscripts, maps or charts.

VBOOKS8520 Treatment of supplies of e-publications that span 1 May 2020

Further information about the treatment of supplies that straddle a VAT rate change and the issuing of credit notes can be found in sections 30.7.4, 30.7.5 and 30.9 of VAT guide (VAT Notice 700).

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Detailed guidance on VAT liability of supplies of e-publications