In an unexpected bonus for publishers in the UK, Chancellor Rishi Sunak has announced that the current 20% tax on ebooks, online newspapers and digital magazine editions will be abolished on 1st December.
“A world-class education will help the next generation to thrive. Nothing could be more fundamental to that than reading. And yet digital publications are subject to VAT. That can’t be right,” said Sunak, delivering his statement. “So today I am abolishing the reading tax.”
The announcement, delivered in yesterday’s Budget, brings digital publications in line with physical newspapers and magazines, which like books, are exempt from tax.
“The government will introduce legislation to apply a zero rate of VAT to e-publications from 1 December 2020, which will make it clear that e-books, e-newspapers, e-magazines and academic e-journals are entitled to the same treatment as their physical counterparts,” the Budget stated.
But it remains to be seen whether publishers will pocket the additional 20% to help ease revenue woes elsewhere, or whether the saving will be passed on to readers. Emphasised in the Budget was the statement that “the government expects the publishing industry, including e-booksellers, to pass on the benefit of this relief to consumers.”
The move is expected to cost the Treasury £200m a year in lost revenue by 2025.
The news has also been welcomed by disability campaigners who have said that the tax unfairly affects readers with sight loss and disabilities who rely on digital books for access.
Some media commentators estimated that the announcement could bring in millions of pounds of additional revenue if the costs to consumers are kept the same:
Bauer’s Head of ePublishing Jim Foster also welcomed the news. For Bauer’s digital editions, it will mean 20% more in revenue from a number of key platforms.
“The scrapping of VAT on digital magazines, newspapers and eBooks will no doubt give publishers a much-needed boost in terms of cashflow,” said Mary Hogarth, MD of The Magazine Expert. “But more importantly, the money saved could be reinvested in developing more advanced digital infrastructure to keep pace with technology, thus enabling publishers to concentrate on raising the quality of the user experience.”
Although it seems to be good news all round, there are concerns about the implementation. “Why are the government waiting until December to implement this?” Hogarth questioned.
A long-overdue ruling
The move is not a complete surprise to some in the industry. In October 2018, the EU announced that it was allowing member states to take sales taxes off electronic publications. France, Italy, Belgium, Portugal and others have already announced plans to lower or remove these taxes.
More significantly in the UK, News UK won a key ruling in January this year, successfully arguing that the Times’ digital edition is ‘effectively a print newspaper’ as the website is updated just four times a day, in ‘periodic editions’. The ruling by a tax tribunal allowed the company to claim back tens of millions of pounds from the government in VAT overpayments, and paved the way for other publishers to argue the same.
The Professional Publisher’s Association (PPA) has been one of a number of organisations at the forefront of a campaign to #AxeTheReadingTax, with a 2018 letter calling on the then-Chancellor Philip Hammond to scrap the ‘reading tax’ being signed by a number of leading editors and publishers in the industry.
More recently in October last year, a delegation of 90 MPs delivered a letter to former Chancellor Sajid Javid demanding the government “end the unfair tax on learning by zero-rating VAT on e-publications”.
“This is great news for publishers and consumers alike. Millions of consumers enjoy trusted quality content in digital formats, and I am delighted the Chancellor has listened to our representations and acted to end this tax on reading,” said PPA Managing Director Owen Meredith, commenting on the announcement to WNIP.
“The PPA is the collective voice of our members across the publishing industry and this result shows what we can achieve when we work together.”
It is unclear at present whether publishers will be able to claim back the VAT retrospectively.