HMRC win News Corp Court of Appeal (Case No: A3/2020/0449)

Update as at 11 March 2021:  HMRC has issued Revenue and Customs Brief 3 (2021): VAT liability of digital publications – update on litigation in News Corp and Ireland Ltd.  This confirms HMRC's current approach (ie, that supplies of digital publications before 1 May 2020 are standard rated.)

HMRC will continue to reject claims.  These decisions can be appealed and that all claims will be subject to the 4-year cap.

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HMRC has won the News Corp Court of Appeal case.  This case considers whether supplies of digital newspapers can be zero-rated on the basis that they an alternative form of the physical newspaper.  It applies to supplies made before 1 May 2020 – from this date supplies of e-publication became zero-rated. 

News Corp had lost at the First Tier Tribunal (FTT), but and won at the Upper Tribunal (UT). The UT case using the “always speaking” doctrine – which basically said that at the time that the legislation was drafted digital newspapers did not exist, so they could not be covered by the zero-rating. 

A full PDF of the Court of Appeal unanimous decision can be found here and further commentary below.  The Court of Appeal “Discussion and Analysis” of the FT and UT cases can be found from para 54 onwards.

What now?

It is likely that News Corp will need permission from the Court of Appeal, if it wishes to take the appeal further to the Supreme Court. (Update as at 1/2/2021: Bloomberg report that 'The News Corp. unit., News Corp. UK & Ireland Ltd., will seek permission to appeal the ruling to the Supreme Court, a company spokeswoman said by email.')

HMRC has rejected (and is rejecting claims) that universities have put in on the back of News Corp.  Universities should check that any claims that relate to supplies on or after 1 May 2020 are not rejected on the grounds of News Corp.

If there is no further appeal by News Court, then any universities that have submitted their own appeals to be “stood over” whilst awaiting the outcome of News Corp, will need to withdraw their appeal.  (Update as at 1/2/2021: given that it appears that News Corp will appeal, universities should not withdraw any appeals that they have in place.  Protective claims will need to be submitted for the period to 30 April 2020, if they have not already been sent to HMRC - these are usually for VAT that has been self-charged via the reverse charge mechanism for purchases from overseas.)

Main points of the case

The main points of the Court of Appeal case are that:

1. HMRC have won the case – zero-rating cannot apply to newspapers in a digital form
2. Lady Justice Rose made the following points in reaching her conclusion:
   • The underlying liability of supplies is standard rated
   • Zero-ratings applied by the UK have to be applied narrowly, under EU law the UK cannot extend its interpretation of the reliefs it has been granted
   • When legislation is drafted the “always speaking” doctrine cannot always be applied – you need to consider if at the time that the legislation was enacted, was the intention that it included “unforeseen developments”.  
   • Group 3 Schedule 8, VAT Act 1994, covers similar, tangible (A comment is made that the group does not envisage that music in an audio form is included – only sheet music)
   • That the term “newspapers” should be applied narrowly, i.e. to physical not digital forms
   • The “fiscal neutrality” argument could not be used to extend the range of zero-rated reliefs.

Key comments

Andrea has pulled out some of the key comments from the case below:

• The UK is limited in how it can apply the zero-rate – under EU law it cannot extend its interpretation “…a category of supply that was not zero-rated by 31 December 1975, because it did not exist, could not later become zero-rated…” see para 58.
• That when legislation is drafted the “always speaking” doctrine cannot always be applied – it depends on the intention when the statute was enacted. “Whether an interpretation covering unforeseen developments is appropriate inevitably involves consideration of the statutory language used, and the policy intention in enacting the provision to determine the extent to which a broad or permissive interpretation is justified or whether instead, a strict approach is required.” See para 63.
• The ruling goes onto say that “There can be no doubt that the ordinary meaning of the words in Item 2 as understood at any time between 1972 and 1991 at least, would have been of a printed newspaper, journal or periodical. The digital news services would not naturally have fallen within the ordinary meaning of “newspapers” and were not envisaged at the time of the enactment of this provision (or by 31 December 1975).” See para 67
• Consideration is given to what items were covered by Group 3, “Group 3 is comprised of a group of similar items; the words used within each Item and in the Notes are to be read and interpreted together and enforce each other” see para 69 and these items are clearly “Tangible” items. Music is cited as an example, “Item 4 refers to “Music (printed, duplicated or manuscript)” and envisages music in paper form rather than music provided in any other way, including in sound form by virtue of an audio recording.”  See para 69(ii)
• Consideration is given to how narrowly the word “Newspapers” can be applied, “….is it possible in my judgment to detect a clear purpose in the legislation which can only be fulfilled if the word “newspapers” is interpreted in the way contended for by News UK. Although the digital news services may well serve the same social policy purpose as the newsprint editions (promoting literacy etc.) the statutory language adopted by Parliament displays a narrower, more circumscribed purpose than that more general underlying social policy” see para 71…..
• I do not consider that the word “newspapers” in Item 2 of Group 3 can be read as including intangible digital news services. Although the content and social purpose of a printed newspaper and the digital news services may be the same, and the two are edition based and contain curated news, put shortly, digital news services are not the same, or in the same genus, as the tangible items expressly included within Item 2. See para 72
• The conclusion reached is that “….. for the reasons set out above, subject to the views of the other members of this court, I would allow the appeal. The word “newspapers” in Item 2 Group 3, when read in its full context cannot be given the expansive interpretation for which News UK contended. Nor can the principle of fiscal neutrality have the effect of extending the scope of the exemption from VAT beyond its expressed limits. The digital news services were not liable to zero-rating in the claim periods because they were not supplies of a description specified in Item 2 of Group 3, Schedule 8 to the VAT Act.”