As reported by the Newspaper Society: Speaking in the House of Commons debate on talking newspapers on Monday the Economic Secretary to the Treasury Andrea Leadsom stated:“The Government remain firmly committed to our ability to maintain the UK’s existing zero rates as we recognise their importance for social reasons.”
She reminded MPs, “when the UK joined the European Community in 1973 we successfully negotiated to keep our existing zero rates on items such as children’s clothing, most foods and physical books, newspapers and journals—a derogation from which most other member states do not benefit.”
The UK charges the standard rate of VAT, at 20 per cent, on electronic newspapers and the zero rate of VAT on physical newspapers. The minister explained that EU VAT rules do not permit member states to extend the scope of existing VAT reliefs or to introduce new ones and outlined the obstacles to extension of the zero rate or a reduced rate to e-newspapers.
The UK government feared if it allowed e-newspapers and books to benefit from a reduced or zero rate, that the Commission would start infraction proceedings against the UK in the European Court of Justice. The government also fears it could put the revenue at risk in the UK market for electronic services, worth around £2.5 billion a year.
ENPA is lobbying on retention of the zero rate and extension of reduced rate for online newspapers and exploring the possibilities offered by the EU review. It has recently informed the Commission of the industry’s objections to the EU high level group recommendation of harmonisation of VAT at the standard rate for newspapers
The Economic Secretary outlined the UK government’s analysis: “The European Commission is undertaking a review, including a public consultation, on member states’ application of reduced VAT rates. Among other matters, it is looking into the principle that similar goods and services should be subject to the same VAT rate, and that progress in technology should be taken into account in this respect so that the challenge of convergence between the online and the physical environment is addressed.
“This principle is regarded as an openness to consider a reduced rate for goods and services such as e-books and newspapers. However, if the Commission did decide to take this view, article 98(2) of the EU VAT directive, which currently excludes electronically supplied services from a reduced rate of VAT, would need to be removed.”
Turning to progress in technology and electronic newspapers more broadly, the Economic Secretary explained that: “EU VAT law does allow member states to implement reduced rates of VAT of no less than 5 per cent for certain goods and services listed in annexe 3 of the EU VAT directive, at the discretion of the member states.
“One of those reliefs is the supply of books on all physical means of support, newspapers and periodicals other than material wholly or predominantly devoted to advertising. This may sound like it should include electronic newspapers, but, as I mentioned, the EU VAT directive specifically excludes electronically supplied services from the reduced rates of VAT. This means that, where talking newspapers do not fall under the zero rate of VAT as an aid for a disabled person, the UK charges the standard rate of VAT, at 20 per cent, on electronic newspapers and the zero rate of VAT on physical newspapers.
“On the related and very important topic of electronic or e-books, many Members will probably be aware that, since 2011, France and Luxembourg have chosen to levy a reduced rate of VAT of seven per cent and three per cent respectively to bring them in line with their VAT rates on physical books.
"This is creating competitive distortions to economic operators in other member states, and there has been pressure from the industry for the UK to reduce its VAT rate on e-books alongside them. The EU Commission, however, has begun European Court of Justice infraction proceedings against France and Luxembourg and has formally instructed them to apply their standard VAT rates to supplies of e-books. If the UK were to reduce or zero rate e-newspapers, it is extremely likely that we, too, would be infracted.
“Furthermore, reducing the rate of VAT on e-books or e-newspapers would be likely to create borderline issues in the wider electronic services market because problems of definition could lead to a widening of the relief through legal challenge and industry changes. This would put revenue at risk in the UK market, which is currently worth over £2.5 billion a year.
“The Government remain firmly committed to our ability to maintain the UK’s existing zero rates as we recognise their importance for social reasons. EU law does not permit member states to extend the scope of existing VAT reliefs or introduce new ones.”
Iain Stewart MP had called the debate to find out whether the zero rate could be applied to talking newspapers. He described how there were, “500 talking newspapers in the UK and Isle of Man. By and large they are small charities where a group of volunteers will read the contents of a local newspaper on to a cassette, CD or digital recording device.
“Those are then posted to registered listeners who listen to the recording and return the cassette or CD to the talking newspaper association in time for it to prepare the next edition, usually on a weekly basis….On average, each talking newspaper has 130 listeners and 34 volunteers, ….Their services are provided free of charge and they rely on small-scale local fundraising and grants to provide an income to cover the recording and distribution equipment and running costs.”
