Do digital editions of newspapers qualify for zero-rating like their printed counterparts?
Jan Garioch CA discusses a recent case, Newscorp UK & Ireland v HMRC, which saw the Upper Tribunal consider whether zero rating could apply to digital newspapers which did not exist when the EU zero rating derogation imposed a standstill on UK domestic law.
The question to be answered by the Upper Tribunal in Newscorp UK & Ireland Ltd (‘News UK’) v HMRC is whether the digital editions of newspaper titles qualify as “newspapers” within the meaning of Item 2 Grp3 Sch8 VATA1994. If answered in the affirmative, then they qualify for zero rating.
First Tier Tribunal
Previously this case had come before the First Tier Tribunal FTT) where News UK failed to secure zero rating. It was common ground that the digital edition was a supply of services, and the FTT found that fatal to the argument that these were newspapers under Item 2. News UK contended that “newspaper” as enacted back in 1972 had to be interpreted to keep pace with technical developments. It referenced the “always speaking” doctrine which is defined as “a construction which takes account of relevant changes which have occurred since an enactment was originally framed but does not alter the meaning of the wording in ways which do not fall within the principles originally envisaged in that wording”. However, the FTT was not persuaded. On the grounds that the zero-rating derogation imposed a standstill on UK domestic law as from 1 January 1991 which precludes extension, the FTT decided Group 3 was intended to be limited to goods as opposed to services.
Upper Tribunal
The Upper Tribunal disagreed with this conclusion. Since zero-rating is an exception to the general rule as to standard rating, the provision must be construed strictly. Nevertheless, it must not be construed so strictly that it is inconsistent with the intended effects which underpin it. It was common ground that Item 2 was intended to promote literacy, the dissemination of knowledge and democratic accountability by having informed public debate. Although digital versions of newspapers did not exist in 1991, the proper characterisation of Item 2 means that digital newspapers are within the genus of things that the pre 1991 legislation did zero rate.
Newspapers – does this include digital versions?
Following from that, the Upper Tribunal had to decide whether the word “newspapers” should be properly construed as including the relevant digital versions. HMRC tried to fend off that conclusion by arguing the digital versions lacked characteristics which are essential for newspapers; namely they are not essentially periodic edition-based with editorial judgement in deciding what stories to include. In their appearances before both tribunals HMRC argued that digital versions provided rolling news on their websites and hence had features inherently unavailable in printed newspaper. On this question, the Upper Tribunal fell in line with the FTT’s findings of fact that the digital editions are the same as or very similar to the newsprint editions and rejected HMRC’s claim that was a finding no reasonable tribunal could have reached.
As the Upper Tribunal inched closer to finding for News UK, its final task was to ensure that such a decision is consistent with the EU’s VAT Directive. It found that in contrast to the position on reduced rates, there was no provision in EU law governing zero rating apart from the standstill provision in Article 110. Since that article defers to the domestic law of each Member State, it is UK domestic law which must apply. European provisions are not relevant to construction of UK legislation dating from 1972, even where the legislation is being construed with the “always speaking” doctrine. Therefore, the appeal was allowed, and zero rating applies.