News UK to take fight for VAT rebate to Supreme Court in move which could net news industry £100ms

News UK will take its case that its digital products should have been exempt from VAT for years in the same way as newspapers to the Supreme Court after suffering a defeat in the Court of Appeal.

The Sun and Times publisher brought the case against HMRC to argue its digital news services should have been zero-rated between September 2010 and December 2016 under the section of the VAT Act that exempts printed newspapers, periodicals and journals.

If the title wins its legal fight the UK news industry could be in line for a tax windfall worth hundreds of millions.

News UK argued that the law could equally be applied to its digital editions of the Times, Sunday Times, Sun and Sun on Sunday because they were “fundamentally the same” as their print versions.

They had to pay 20% VAT on these digital products before last May when the Treasury imposed a zero rate of VAT on all e-publications, including newspaper and magazine online subscriptions.

The move was fast-tracked by seven months to help make online news more accessible as people stayed at home during the Covid-19 lockdown.

[Read more: News industry set for £50m-a-year boost from VAT cut on digital publications]

News UK lost its original case at the First-tier Tribunal in 2018 but won on appeal to the Upper Tier Tribunal, a ruling that was in turn appealed by HMRC. The publisher now intends to escalate the case to the Supreme Court.

HMRC’s case was that the word “newspapers” applied only to tangible products and argued that the Upper Tribunal’s ruling was an “impermissible extension of the zero-rating regime and therefore contrary to both domestic and EU law”.

The Court of Appeal judges agreed, finding it would be an “impermissible expansion” of the VAT Act’s zero-rating provision to read “newspapers” as including digital news services.

Lady Justice Simler and colleagues found that Parliament’s wording of the legislation made clear it was to refer to physical or tangible items only, adding that the way it listed specific examples indicated a “narrow or circumscribed Parliamentary intention, and not a broad, permissive one”.

She added: “Although the content and social purpose of a printed newspaper and the digital news services may be the same, and the two are edition based and contain curated news, put shortly, digital news services are not the same, or in the same genus, as the tangible items expressly included within Item 2 [of Group 3 of Schedule 8 to the Value Added Tax Act 1994].

“It is an intrinsic part of the statutory definition of Item 2 that the items within it are tangible or physical articles. The digital news services are intangible and different in kind and in the dimension of their complexity for determining issues like the place of supply.”

The Court of Appeal ruling also said that although the digital news services “may well serve the same social policy purpose as the newsprint editions (promoting literacy etc.) the statutory language adopted by Parliament displays a narrower, more circumscribed purpose than that more general underlying social policy”.

“The same social policy purpose would be fulfilled by a ‘rolling news’ service but nobody suggests that a rolling news service is a newspaper. In those circumstances it is not legitimate to seek to give effect, by means of a purposive construction, to a perceived wider policy than can properly be supported by the statutory language itself.”

The publisher’s case also relied on the principle of “fiscal neutrality” meaning that goods and services that are similar should be treated in the same way for VAT purposes but Lady Justice Simler ruled the scope of the provisions could not be extended by applying a principle of interpretation like this.

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A News UK spokesperson said: “We are disappointed at the decision of the Court of Appeal which overturns the decision in our favour at the Upper Tier Tribunal.

“We will be seeking leave to appeal to the Supreme Court.”

Press Gazette research has suggested the zero-rating to digital news products will make the newspaper and magazine industry better off by £50m a year.

We estimated that News UK will be the biggest winner, reaping a potential £15m a year.

Read the full Court of Appeal ruling here.

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