Scott Harwood

Written by: Scott Harwood and Steve Hodgetts

Scott Harwood

Partner, Head of Public Sector VAT

Surprise VAT decision could offer a financial bonus for membership bodies

A recent VAT ruling could potentially lead to a VAT windfall for the many not-for-profit membership organisations that offer their members periodic digital journals and similar e-content.

As an early Christmas present for them , the Upper Tribunal (UT) decision for News Corp UK and Ireland Limited (News Corp), the publisher of The Times, was released on Christmas Eve. The decision confirmed News Corp had been successful in its appeal, in which it had argued that the digital versions of its newspapers should be zero rated for VAT purposes.

HMRC has  always contended that the zero rate should be limited to printed matter, with digital e-books or e-newspapers ineligible for zero rating. Whilst News Corp’s original claim was rejected in the First-tier Tribunal (FTT) in 2018, on careful analysis, the UT overturned the FTT’s decision and concluded that the digital versions shared the same essential characteristics of a newspaper, and that the law did not explicitly exclude digital services from the zero-rate.

In recent years, we have seen many membership bodies, including  learned societies, representative bodies and similar public interest organisations, encouraging their members to move to electronic versions of their newsletters and journals. Despite the increased VAT cost of doing so, there is a motivation to move to digital for environmental reasons and to help lower production costs. 

Collectively, membership organisations pay over millions in VAT to HMRC to account for electronic periodicals provided to their members. If they were allowed to apply the zero rate, the financial benefit and reduced risk of having to accurately estimate the benefit would be huge.

Furthermore, as membership organisations have historically been allowed to effectively split-out e-journal income from their membership fees, there may be scope to go back in time and recover any VAT overpaid to HMRC, ostensibly as the law never required them to account for tax in the first place. We may expect to see organisations submitting quite large rebate claims as a result.

We understand HMRC has not released any statement but that it may appeal the case to a higher court. Therefore, it is not certain that claims for VAT refunds based on the News Corp decision will ultimately be successful. Nevertheless, organisations that produce or purchase digital publications should take steps to quantify the potential benefits and consider making a protective claim. 

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