This case concerns an appeal to the Upper Tribunal (“UT”) against the decision of the First Tier Tribunal (“FTT”) which held in 2018 that online newspaper publications were standard rated for VAT purposes and not zero rated.

The UT reversed the FTT’s decision in this case and held that digital newspapers should be zero rated as the print and e-reader versions were sufficiently similar. HMRC is considering its response to the Upper Tribunal’s decision in this case.

In 2019, the Cairncross Review specifically recommended extending the zero-rating of VAT to digital newspapers and magazines. The EU is currently debating the rules on VAT on digital books and online published media.

Background

News Corp UK & Ireland Limited (“News UK”) is the representative member of a VAT group that publishes, principally, The Times, The Sunday Times, The Sun and The Sun on Sunday.

In a 2018 decision, the FTT concluded that, although the digital versions are the equivalent to the newsprint editions, they are not “newspapers” within the meaning of Item 2 Group 3 of Schedule 8 to the Value Added Tax Act 1994 (“VATA”). News UK appealed against that decision.

The FTT reviewed the print and digital editions for the relevant newspapers and undertook a site visit of The Times newsroom. The Times and The Sunday Times are produced in two, and sometimes three, editions. The later edition(s) contain(s) any number of updates ranging from corrections to completely new articles. The digital editions include the following:

• An e-reader edition (an exact facsimile of the 2nd edition of the printed newspaper) which is available for download onto a tablet or personal computer.
• A tablet edition (an almost exact copy of the 2nd edition, but with some formatting changes) which is available for download onto a tablet computer. This is rarely, but occasionally, updated in the event of breaking news later in the day.
• A website edition (which may be viewed on any internet browser) which is published as a complete edition overnight. Since March 2016, this has been updated three times the following day. Prior to March 2016, it was also updated, but not at fixed intervals.
• A smartphone edition derived from the website version which is available for download overnight. Each of the three updates during the following day are also available for download.

Additional content is available with each of the editions.

The FTT found that the digital editions (with the exception of the Sun Interactive App) were essentially periodic edition-based publications. Although the tablet, website and smartphone editions permitted updates, these were relatively minor and in some cases were broadly the equivalent of further editions of the newsprint editions. Only 10 percent of readers read the updated stories on the website and smartphone editions.

The written content of news and other stories of The Times and The Sunday Times was fundamentally the same or very similar as between the digital editions and the printed editions.

Additional content available on the tablet, website and smartphone editions of The Times and The Sunday Times was found by the FTT to be a relatively minor aspect of those digital editions. The FTT also found that from the point of view of subscribers, it was the content rather than the medium of its delivery to which most value was attached, although subscribers also valued the additional convenience of the digital platform.

The FTT noted that The Sun Classic App (being a PDF version of the newsprint edition) was essentially similar in content to and shared the same characteristics as the newsprint editions.

Finally, the FTT found that The Sun, on the basis that its contents closely mirrored that of the newsprint editions, had similar characteristics to the newsprint version.

As it was common ground between the parties that the digital editions constituted a supply of services, the FTT concluded that this was fatal to News UK’s case that the digital editions were “newspapers” within Item 2 and therefore these could not be zero rated. That was because “the text of Items 1 to 5 and the Notes … supports the view that the whole of Group 3 (except as otherwise provided for in the Notes) is confined to the supply of goods and does not include the supply of services.”

The FTT separately considered the “always speaking” doctrine of statutory construction. News UK had relied upon this doctrine as an alternative argument to its case that the word “newspaper” in Item 2 as enacted in 1972 included digital versions to submit that the word, as used in 1972 legislation, must be interpreted in a way which keeps pace with technological developments.

The FTT rejected that argument and held that Item 2 should be construed strictly which therefore prohibited the application of the “always speaking” doctrine. The requirement for strict interpretation arose because:-

• zero rating is a derogation from the general principle that all supplies of goods and services should be subject to VAT; and
• Article 110 was a “standstill” which precluded the extension of the scope of zero-rating provisions beyond their 1991 limits.

News UK contended, in the alternative, that the principle of fiscal neutrality applied such that the similarities between the print and digital versions of the newspapers (viewed from the perspective of consumers) required them to receive the same VAT treatment.

Despite accepting that the digital editions were similar to the newsprint editions from the point of view of the consumer, the FTT rejected News UK’s fiscal neutrality argument. Its decision was based on its conclusion that “newspapers”, in 1991, applied only to the supply of goods, i.e. printed matter, and that the principle of fiscal neutrality could not be applied so as to extend the scope of the zero-rating provision to services.

News UK’s appealed against the FT decision. The appeal raised the following two issues:

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

HMRC raised the following additional issues:

• 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
• 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 Council Directive 2006/112/EC.

Decision

The UT held that the FTT had been wrong to conclude that Schedule 8 was intended to be limited to items that were goods as opposed to services pointing out that Section 30 of VATA authorises zero rating for both goods and services.

Digital versions of a newspaper share the essential characteristics of print newspapers. This was to promote literacy, the dissemination of knowledge and democratic accountability by having informed public debate. This amounted to the clearly defined social reasons within Article 110 of the EU VAT Directive which justified the preservation of the zero-rating of newspapers when the UK joined the EU.

The UT further 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 and thus the digital versions were zero-rated.

The UT further stated that this zero rating was neither an impermissible extension to the zero rates that applied in the UK in 1991, nor was it inconsistent with EU law which said (before the EC Directive 2018/1713 was adopted on 4 December 2018) that e-publications could not be taxed at a reduced rate.

The full judgment in this case is available from: https://assets.publishing.service.gov.uk/media/5e022e8be5274a34128a4a47/News_Corp_UK_and_Ireland_Ltd__v_HMRC.pdf