Zero-rating date brought forward
New start date. The VAT rate change was announced in the Budget in March, with the original intention being for it to take effect on 1 December 2020, ready for Christmas. But due to the coronavirus crisis, the start date was brought forward by seven months to 1 May.
Products. The new zero rate applies to electronic supplies of books, booklets, brochures, pamphlets, leaflets, newspapers, journals and periodicals (including magazines) and children’s picture and painting books. The VAT rate was previously 20%.
Trap. For books, the zero rate only applies to the sale of electronic types of product if their physical equivalents already benefit from that treatment, i.e. are already zero-rated in UK law. So a novel would qualify, but a workbook designed to be filled in wouldn’t. Audiobooks are therefore standard-rated in both a physical or digital format. A product cannot be zero-rated if more than 50% of it is devoted to advertising, audio or video content.
Tip. The term “supplied electronically” is not defined in the legislation. HMRC guidance confirms that it should take its generally accepted meaning and includes “supplies made over the internet and by email” .
Benefits. If you are an online publisher, selling mainly to the general public, or customers that cannot claim input tax, the change will make your products more competitive. If you buy or subscribe to online products, there will also be a cost saving if you cannot claim input tax, e.g. your business is partially exempt.
Tip. The cost saving assumes that you will pass on the VAT saving to customers rather than increase prices.
Trap. Many subscriptions are paid for a year in advance in January. Unfortunately, there is no scope to back pedal and adjust the VAT for the last eight months of the subscription year because the tax point was created when the payment was made.
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