News industry set for £50m-a-year boost from VAT cut on digital publications

The UK’s newspaper and magazine industry stands to be at least £50m-a-year better off after a Government move to cut VAT for digital publications, research by Press Gazette suggests.

News UK, which owns the Times and Sun newspapers, looks set to be the sector’s biggest winner, reaping a potential £15m a year from the decision to make e-publications and online subscriptions zero-rated for the tax.

The cut was introduced on 1 May – having previously been scheduled to come into effect on 1 December – to help publishers cope with the coronavirus pandemic. The industry has long argued that digital news, liked printed newspapers, should be zero-rated for VAT.

Announcing the move – which came alongside a pledge to spend £35m in advertising to support the print media during the Covid-19 crisis – the Government said it would cut the cost of subscriptions and “save consumers money”.

But Press Gazette understands that few news organisations intend to pass the saving on. News industry insiders instead argue that subscription prices are set according to the market and they have in effect been absorbing the VAT cost on behalf of consumers for many years.

As the UK newspapers with the biggest number of online subscribers in the UK, The Times and Sunday Times look set to be the biggest beneficiaries of the move, followed by the FT and then the Telegraph, according to Press Gazette’s calculations.

The below estimates of likely annual benefits of the VAT change are based on ABC circulation figures and UK online subscription figures released by publishers.

– Times and Sunday Times: £15m

– Financial Times: £10m

– The Telegraph: £6m

– The Guardian: £5m

– The Economist: £5m

– Mail newspapers: £2m

– The Week: £800,000

In total, Press Gazette estimates that the Times newspapers, Financial Times, Guardian, Economist, Telegraph, Mail newspapers and The Week magazine will earn around £44m extra a year as a result of the VAT cut.

Gains across other newspapers and magazines not included in our study should easily take the figure to above £50m.

A News UK spokesperson said: “Journalism plays a vital role in democracy and, as readers transition to reading digitally, we have long made the case that the UK VAT rules which provide for zero-rating for print newspapers should be accepted as applying to digital newspaper subscriptions.

“This exemption, particularly when the industry is facing pressures due to Covid-19, will enable current pricing to be sustained for as long as possible for the benefit of consumers and will maintain investment in the high-quality journalism that our readers rely on. ”

A spokesperson for The Guardian said: “Modernising digital VAT laws to mirror the zero-rating applied to newspapers is vital as digital products and subscriptions evolve with consumer demand.

“The Guardian’s unique funding model means that any savings made as a result of this legal change will be reinvested into supporting more independent Guardian journalism.”

Overall it is estimated that the VAT change – which includes all digital publications, including e-books – will cost the taxpayer £810m over five years.

The News Media Association said: “The Government has implemented some very helpful initiatives as the news media industry grapples with the challenges of the pandemic, such as fast-tracking VAT zero-rating on e-publications, a public health ad campaign in news media, and early recognition of the industry’s key status. These measures are making a difference and we welcome them.

“However the industry, principally the local news media sector, requires further significant intervention if it is to survive this crisis and continue to deliver the trusted journalism which the public are demanding in ever greater numbers.

“We urge the Government to urgently look at other initiatives such as support for public interest reporting, advertising tax reliefs for news media, and quickly progressing work to level the playing field with the tech platforms.”