*Update: R&C Brief 3(2021) has been issued in respect of the ongoing litigation over the application of the zero rate for printed material prior to 1 May 2020.  It should be noted that this litigation has little or no application to the position from 1 May 2020, and does not create an issue around the introduction of the zero rate for digital literature as from that date.  This basically covers an argument as to whether the zero rate can be viewed as applying to digital literature prior to May 2020.

The message is that the Court of Appeal has allowed HMRC’s appeal and therefore has rejected the argument in favour of zero rating for digital literature prior to May 2020.  However, it also tells us that News Corp is seeking leave to appeal to the Supreme Court.

It seems very likely that the appeal will continue.  It is not uncommon for the Supreme Court to reinstate an Upper Tribunal decision which had overturned the lower tribunal (sometimes referred to as a ‘flip flop’ pattern of results).  Having read parts of the Court of Appeal decision, there seems a reasonable case for News Corp to take forward.

Whilst this may not be welcome news, the case is far from finished, and charities may wish to consult their advisors as to the stance to take.*

The Upper Tribunal previously published its judgment in a case taken by News Corp as to whether electronic editions of newspapers could be zero rated as “newspapers”.

In a decision released on 8 March 2018, the First-tier Tribunal Judge Guy Brannan, had concluded that, although the digital versions are the equivalent to the newsprint editions, they are not “newspapers” within the meaning of Item 2.

News UK’s appeal raised two issues:

• (a) whether the digital editions of the newspaper titles are “newspapers” within the meaning of Item 2; and, if not,
• (b) whether the application of the principle of fiscal neutrality nevertheless requires zero-rating.

By a Respondents Notice, HMRC raised the following additional issues:

• (a) whether the FTT’s finding that the digital editions were similar to the print versions of the newspapers was one which no reasonable tribunal could have reached (on the basis of the test in Edwards v Bairstow [1955] 3 All ER 48); and
• (b) whether the Decision was supported on the additional ground that News UK’s case was inconsistent with Articles 96 to 99, 110 and 114 of the PVD

The Upper Tribunal determined that the FTT had been wrong to conclude that the relevant Schedule was intended to be limited to items that were goods as opposed to services, pointing out that VAT legislation authorises zero rating for both goods and services.

It also stated that the digital versions shared the essential characteristics of a newspaper, namely ‘to promote literacy, the dissemination of knowledge and democratic accountability by having informed public debate’.

It concluded that the purpose of the legislation was neutral as regards the manner in which the newspaper was supplied – be it digital or physical – and that the print and e-reader versions were sufficiently similar that the original legislative purpose extended to both.

It remains to be seen whether HMRC will appeal the case and whether it will be read across to other electronic publications not currently in receipt of VAT zero rating.