Correspondence with HMRC regarding the zero rating of E-publications

At the beginning of June,  Andrea raised a few questions with HMRC regarding the zero rating of E-publications, seeking clarification on a few grey areas. 

The questions and HMRC’s response are reproduced below.  BUFDG’s guidance note on the zero-rating of E-publicaitons will be updated shortly:

Question 1:  Can HMRC grant an extension to the 45 day time limit for credit notes to be raised by suppliers for supplies spanning 30 April/1 May because the change of rate has been implemented during the COVID-19 crisis? 

HMRC response to Question 1 - Your query with regard to the 45 day rule on credit notes is still under consideration. A response will be issued in due course.

(NB – Since Andrea raised this issue, we are aware that some publishers have been granted an extension, including Jisc and EBSCO)

Question 2: Does the 4-year rule apply to reverse charge reversals or will the adjustment need to be made on the July 2020 return?

Universities will be reversing out the element of reverse charge adjustments on e-publication subscriptions that relate to 01/05/2020 onwards. For example, if a university purchased an e-publication subscription from an overseas supplier that relates to 01/09/2019 to 31/08/2020, it will reverse out the VAT on the element of the supply that relates to 01/05/2020 to 31/08/2020. It will be necessary to offset against this adjustment any input tax that has been reclaimed, for example, in relation to onward supplies.

HMRC response to Question 2 – There are no special rules in the legislation that introduced zero-rating for e-publications , therefore the normal rules apply and are subject to the 4-year rule.

(NB – an advisor has suggested that there could be an argument that the four year cap may not apply because no error was made when the VAT was accounted for and the reversal has arisen because of a change in the VAT rate not to correct an error.  Therefore, if you are unable to calculate the reverse charge VAT that can be reversed out, in time for your July 2020 VAT return to be submitted, it may be worth writing to HMRC, stating that you are aware that an adjustment was due on the July 2020 return but you were unable make it.  Any adjustment would be subject to the voluntary disclosure limits.)

Question 3:  Can HMRC please confirm that the supplier can treat, for example, an audio book supplied with an e-publication for a visually impaired user, as ancillary to the main zero-rated supply, and therefore, zero-rate the whole supply?

HMRC response to Question 3 -  Audio books remain as a Standard-Rated supply. Therefore, a supplier will need to look at Single/Multiple supplies and apportionment.

(NB – for UK supplies such an appointment will need to be calculated by the supplier; for reverse charge supplies, the apportionment will need to be calculated by the university.)

Question 4:  Would HMRC accept in principle that the supply can be apportioned between a Standard-Rated and a Zero-rated element?

HMRC response to Question 4   – As per Q3 above, the supplier would need to distinguish whether there was a single/multiple supply, with reference to the guidance in Public Notice 701/10 section 6.3.

(NB – this is the link to Public Notice 701/10 section 6.3.

It states

6.3 The three possible liability outcomes

There are three possible liability outcomes if zero-rated printed matter is supplied with other items:

• the standard-rated item may be ancillary to, or an integral part of, the supply of zero-rated printed matter, the resulting supply is a single, zero-rated supply (but covers, cases and similar articles not separately accounted for are already zero-rated under Item 6 of Group 3, Schedule 8 of the VAT Act 1994)
• the zero-rated printed matter may be ancillary to, or an integral part of, the supply of the standard-rated item (for example, an instruction booklet provided with a new washing machine, the resulting supply is a single, standard-rated supply)
• there may be a multiple supply, where two or more items are distinct and independent, if the items are sold for a single price and are liable to different rates of VAT you must make an apportionment, (see the VAT guide (Notice 700)))

Question 5 : Would HMRC confirm that e-publications titles do not need to be available in physical form to qualify for zero-rating, provided that the e-publication has the essential characteristics of printed matter (i.e. that it is a static version, no rolling news content, video features, etc)?

HMRC response to Question 5  – The new rules allowing for the zero-rating of publications when they are supplied electronically are listed in items 1 to 3 of Group 3 of Schedule 8.  This includes e-publications that do not exist in printed form.