RSM's Peter Williams says HMRC is accepting VAT repayment claims following News Corp's win for digital publications but is refusing to repay until it's had a chance to appeal.
**Update - The 2020 Budget on 11 March announced that digital publications would be zero-rated from 1 December 2020**
Following News Corp v HMRC  UKUT 0404 (TCC) late last year, in which it was held that the digital editions of The Times and other News Corp newspapers should be zero-rated, HMRC has published Revenue & Customs Brief (RCB) 1(2020).
The RCB explains how businesses can now submit claims for overpaid VAT and protect their position, while at the same time confirming HMRC’s view on the treatment of supplies of digital newspapers and other digital publications has not changed. HMRC’s view is that businesses providing digitally downloaded publications should continue to treat their supplies as subject to VAT. The RCB also confirms that HMRC have been granted permission to appeal the News Corp decision to the Court of Appeal.
The RCB states that all claims for overpaid VAT should explain fully why News Corp applies, provide a breakdown of the claim amount and calculation method, and be supported by sufficient documentation. Claims that do not meet these criteria will be rejected and will not be effective in protecting historical VAT accounting periods.
Affected businesses that make supplies of digital publications should now consider protecting their position to prevent VAT accounting periods falling out of time under the four-year cap that limits the making of claims for overpaid VAT. This is because the litigation in News Corp is likely to continue for several years and any claims made are unlikely to be paid by HMRC until when, and if, the litigation is finally concluded in News Corp’s favour.
It should be noted that the Court’s ruling in News Corp that online editions of newspapers qualify for zero-rating in the same way as their printed counterparts is also capable of being applied to other items supplied in a digital form that are treated as zero-rated when supplied in a printed form. Whilst HMRC will continue to resist what they see as an extension of the zero-rating provisions, businesses that supply digitally downloaded books, brochures, journals, periodicals, children’s picture and painting books, music in manuscript form and maps should therefore also consider whether to protect their position by submitting a claim to HMRC now. Rejected claims will need to be appealed by taxpayers and then stood behind the News Corp litigation.
Following both the News Corp case and the recent Cairncross Review, which recommended the extension of zero-rating to digital newspapers and magazines, the Government will now come under increasing pressure to extend the scope of the zero-rate to digital publications. However, whilst the Government could decide to widen the scope of zero-rating from a future date in a Budget, HMRC are still likely to continue to fight the News Corp decision given the substantial amounts of tax at stake for the Exchequer in historic VAT accounting periods.