Share it

In this post, Jack Prytherch, Of Counsel in the Tax team at CMS, previews the case of News Corp UK & Ireland Limited v Commissioners for His Majesty’s Revenue and Customs, which is scheduled to be heard on 22 and 23 November 2022.

The Supreme Court will consider whether the Court of Appeal erred in finding that supplies by News Corp UK & Ireland Limited (“News UK”) of digital editions of The Times, The Sunday Times and The Sun were not supplies of “newspapers” such that they could not be zero-rated for VAT purposes.

Background

It is a general principle under EU law that all supplies of goods and services should be subject to VAT. Derogations from that general principle (e.g., by way of exemptions, reduced rates and zero-rating) are strictly limited.

In the UK, supplies of “newspapers” are zero-rated pursuant to section 30 and Item 2, Group 3 of Schedule 8 to the Value Added Tax Act 1994 (“VATA”). Accordingly, a person making a supply of “newspapers” for these purposes would not have to account for output tax on such supply but could still recover associated amounts of input tax.

Prior to Brexit, the UK’s zero-rating for “newspapers” (as a derogation from the general principle referred to above) relied on successive EU “standstill” provisions designed to preserve the treatment of certain supplies that had existed prior to the UK joining the common system of VAT (including the tax-free treatment of newspapers in place under the UK’s previous Purchase Tax regime). Most recently, Council Directive 2006/112/EC, art 110 provided that member states operating zero-rating as at 1 January 1991 under domestic law were permitted to continue to do so, provided that such zero-rating had been adopted for clearly defined social reasons and for the benefit of the final consumer.

Taking advantage of a relaxation in EU rules, UK legislation was amended from 1 May 2020 to make clear that electronic supplies of certain publications, including digital editions of newspapers, would be zero-rated. However, prior to that date, HMRC’s position had been that the term “newspapers” under Item 2, Group 3 of Schedule 8 VATA should be interpreted as applying to printed newspapers only (i.e., as a supply of goods) – whereas supplies of digital newspapers (as supplies of services) were regarded by HMRC as standard rated for VAT purposes.

News UK is the representative member of the VAT group that publishes The Times, The Sunday Times and The Sun (including The Sun on Sunday). In a challenge to HMRC’s historical position as described above, News UK submitted VAT claims for the period from September 2010 to December 2016 on the basis that supplies of digital editions of these newspapers should be zero-rated for VAT purposes.

One of News UK’s main arguments was that, under the “always speaking” principle of statutory construction, the term “newspaper” for these purposes should be interpreted in a way that has kept pace with the modern world. News UK also argued that the principle of fiscal neutrality prevented VAT from being imposed differently so as to distort competition between supplies which are objectively similar from the viewpoint of consumers (i.e., printed and digital editions of the same newspaper).

Decision of the First-tier Tribunal (“FTT”)

Having conducted a detailed evidential review, the FTT found the content of the printed and digital editions of News UK’s newspapers was essentially the same or very similar. The FTT also accepted that both the printed and digital editions of these newspapers served the same general purposes of promoting literacy and informing public debate.

Notwithstanding these findings of fact, the FTT concluded that Item 2, Group 3 of Schedule 8 VATA should be interpreted as applying only to printed newspapers. Zero-rating is a derogation from the general principle that all supplies of goods and services should be subject to VAT (and subject to standstill provisions) and therefore must be strictly interpreted. On that basis, the FTT held that neither the “always speaking” principle of statutory construction nor the principle of fiscal neutrality could extend the scope of this provision beyond the supply of goods (i.e., printed newspapers) to cover the supply of services (i.e., digital newspapers).

Decision of the Upper Tribunal (“UT”)

The UT allowed News UK’s appeal and concluded that the digital editions of the relevant newspapers were “newspapers” for relevant purposes.

According to the UT, although the various Items in Group 3 of Schedule 8 VATA were all physical articles at the time of enactment, there was nothing in the legislation to suggest that Parliament had intended to exclude non-physical articles. On that basis, the fact that digital newspapers constituted supplies of services was not in itself sufficient to exclude them from Item 2, Group 3.

The UT also held that the “always speaking” principle is not excluded by the fact that zero-rating is designed to be restrictive – indeed, a digital newspaper was precisely the sort of technological innovation that the “always speaking” principle was intended to address. In light of that decision, it was not necessary for the UT to address the fiscal neutrality argument.

Decision of the Court of Appeal

The Court of Appeal reversed the UT’s decision, concluding that the proper construction and scope of Item 2, Group 3 of Schedule 8 VATA extended only to supplies of physical articles.

Examining the language used by Parliament, the Court of Appeal noted that Group 3 of Schedule 8 VATA is comprised of similar Items (e.g., newspapers, books, booklets, maps, etc.) and held that the words used within each Item and in the notes to that provision must be read and interpreted together. The reference to specific articles and the circumstances of the enactment of Group 3 of Schedule 8 VATA indicated a narrow Parliamentary intention that was consistent with zero-rating being a derogation from the general principle that all supplies of goods and services should be subject to VAT. Although the printed and digital editions of News UK’s newspapers may serve a common social policy, the wording adopted by Parliament displayed a narrower purpose. The Court of Appeal noted, for example, that the same social policy would be fulfilled by a “rolling news” services, which it said clearly should not fall within the term “newspaper”. The purposive approach adopted by the Court of Appeal and the “always speaking” principle could not be elevated above the need for a strict approach to be taken as regards the interpretation of zero-rating provisions.

In light of its conclusions, the Court of Appeal did not need to consider the wider arguments around fiscal neutrality. However, it described News UK’s arguments on this point as problematic for several reasons, including that the CJEU had previously ruled that the infringement of fiscal neutrality may be envisaged only as between “competing traders”. The Court of Appeal held that, although consumers may choose between the printed and digital formats supplied by News UK, these formats were not in competition with each other in the same way as they might be with the printed or digital products supplied by rival publishers.

Comment

As referenced above, Group 3 of Schedule 8 VATA was amended with effect from 1 May 2020 to make clear that, amongst other things, Item 2 can include electronic supplies of newspapers. As such, the importance of News UK’s appeal is largely historical. As noted in the Court of Appeal’s decision, however, the principles of this case may also apply to other Items within Group 3 of Schedule 8 VATA and elsewhere – in particular to “books”, “journals” and “periodicals”.