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Revenue and Customs Brief 17 (2016): VAT – treatment of colouring and dot-to-dot books

Purpose of this brief

This brief sets out the HM Revenue and Customs (HMRC) position on the scope of the zero-rate for colouring and dot-to-dot books.

Readership

Publishing houses, wholesalers and retailers of books.

Issue

There is now a wide range of colouring and dot-to-dot books on the market. Many of these are specifically labelled as suitable for children and/or adults. This brief announces HMRC policy in respect of the VAT treatment of these publications which is effective from 1 April 2017.

Background

The last two years or so has seen a growth of books labelled or described as ‘adult colouring books’ and ‘adult dot-to-dot books’. Many suppliers have zero-rated these books in the belief they are a general book (like a paperback or hardback novel, for example) placing reliance on Item 1 of Group 3 to Schedule 8 of the VAT Act 1994. However, the leading case on what is a book is ‘Customs and Excise Commissioners v Colour Offset Ltd [1995]’. In that case, the High Court found that a book is produced on paper or card, consists of a number of leaves and is bound in a stiffer cover. In addition, the book must be designed to be ‘read or looked at’.

While the adult colouring and dot-to dot books satisfy most of the conditions, they are not designed to be read or looked at. In fact, they are designed to be completed. Any text is likely to be in support of the pictures to be coloured-in or created from joining the dots.

Therefore, while these books are not zero-rated under Item 1 of Group 3, they could be zero-rated under Item 3 of Group 3 as ‘children’s picture and painting books’ if changes are made as discussed with the trade representatives.

Children’s picture and painting books

HMRC is clarifying its policy concerning the VAT treatment of these types of books, including colouring and dot-to-dot books, particularly those sold after 1 April 2017.

Colouring books that are suitable and held out for sale to children under the age of 18 years are zero-rated. Most of the content of the books currently sold as ‘adult colouring books’ or as books ‘suitable for grown ups’ is also suitable for children under the age of 18 years. However, the way they are marketed and held out for sale, in HMRC’s view, prevents them from being eligible for the zero-rate.

HMRC accept that colouring or dot-to-dot books are VAT zero-rated unless one of the following applies. The books are:

  • marked as suitable for adults or grown-ups
  • held out for sale in retail shops together with other adult books that are unsuitable for children or are not appropriately marked as suitable for children when for sale on a website
  • contain images reflecting profanity, pornography, violence and illegal acts

If the book meets any of the three conditions above, it will be a standard rate supply.

Further information on these changes and how HMRC define some of these terms is covered in an amendment to VAT Notice 701/10: zero-rating of books and other forms of printed matter, issued today.

Treatment of supplies made prior to 1 April 2017

HMRC has carefully considered the circumstances that have led most suppliers to conclude that these books were zero-rated and has reviewed our current guidance.

HMRC considers that the vast majority of book sales made could have been zero-rated had the publisher, wholesalers and retailers understood that how they were marketed or held out for sale was significant, even though the content was suitable for children.

Therefore, HMRC does not intend to seek recovery of any tax on colouring or dot-to-dot books sold prior to 1 April 2017 where the content is suitable for children (people under 18 years of age). This is irrespective of how the book was marketed or held out for sale at the time.

Those books that contain images reflecting profanity, pornography, violence and illegal acts (as determined in VAT Notice 701/10: zero-rating of books and other forms of printed matter) will not be treated as zero-rated. The content of such books can never be seen as suitable for children.

The implementation date of 1 April 2017 for the new policy to apply is designed to give publishers, wholesalers and retailers an opportunity to use up existing stocks as well as to review how they are to be marketed and held out for sale in the future.

Correcting errors

HMRC will consider claims for overpayment of VAT in the following circumstances:

  • the business has declared VAT on colouring books suitable for children under the age of 18 years old
  • HMRC has raised an assessment of tax for colouring books suitable for children under the age of 18 years old

HMRC will consider claims for repayment of penalties and interest charged as a result of such assessments. Time limits for error correction in relevant cases:

  • 4 years from the due date of the relevant VAT return where VAT has been incorrectly declared by the business
  • 4 years from the date the assessment was paid where HMRC have raised an assessment that incorrectly applies VAT to colouring books suitable for children under 18 years old

Further information on the monetary limits and which returns may be adjusted is available in VAT Notice 700/45: How to correct VAT errors and make adjustments and claims.