When the UK joined the EU in 1973 it fought hard to obtain the zero-rating of books, and then again when the single market was introduced in 1991 the UK had to fight hard to retain that zero-rating. However, as the EU Commission wanted to harmonise things throughout the EU it was only retained as a concession and the Commission would not allow the zero-rating to be extended.
It is HMRC's position that allowing the zero-rating of e-books would extend the zero-rating further. However, many in the publishing industry have argued that the word ‘book' in VAT legislation should refer to both physical books and e-books and failing that, both should qualify under the rules for fiscal neutrality. As both products meet the customer's needs in the same way it is only the format that differs.
So this means that a book in electronic form is standard-rated, unless it is covered by the special relief for talking books for the blind. Therefore a CD or download is standard-rated, despite the same material on paper being zero-rated.
EU position – Changes likely?
Most EU member countries standard rate the sale of books, but recently France and Luxembourg introduced reduced rates of VAT on sales of electronic versions of books at 7% and 3% respectively. The EU Commission challenged this and won in the ECJ; France, however, decided to pay the fine and retain its lower rate!
The EU Commission has held a consultative review of technology-related VAT issues, including e-books, which closed in early 2013. The Commission plans to come up with a draft proposal on the VAT rules for e-services by the end of 2013, with the intention of bringing in new legislation for electronic and physical books by 2015.
The EU has already indicated its willingness to rethink how VAT is imposed on electronic services and has indicated that it wishes to treat similar goods and services in the same way and apply the same VAT rate. Unfortunately, the answer to this anomaly is probably going to be standard-rating for books. The zero-rating in the UK is the exceptional situation, not the other way around!
Legal challenge
Despite the Commission’s successful challenge to the Luxembourg and French governments a UK law firm is taking an appeal to the First-tier Tribunal on behalf of an unnamed client on the grounds that e-books should be subject to the same VAT rate as printed books.
They presumably hope that this litigation will result in the zero-rate being extended to e-book sales in the UK, at least for the time being.
So what does the zero-rating cover?
Supplies of any of the following are zero-rated:
• literary works;
• reference books;
• directories and catalogues;
• antique books;
• collections of letters or documents permanently bound in covers;
• loose-leaf books, manuals or instructions, whether complete with their binder or not; and
• amendments to zero-rated loose leaf books, even if issued separately.
Paper and electronic books
Sometimes you can subscribe to a magazine or technical book and are given free access to an electronic version, either web based or a CD is provided. In this case the zero-rating can apply to the entire subscription as there is no extra charge for the electronic format. If an extra charge was made then the subscription would have to be apportioned between the zero and standard rated elements.
Practical Tip :
Currently the zero-rating for books does not extend to e-books. However, when the EU Commission reviews the situation it is likely to change. But will e-books be zero-rated or paper books standard rated?
Andrew Needham
