Interviewer: Esther Kezia Thorpe
Owen Meredith: So we’ve had crazy situation, basically ever since digital product and page turner PDFs of magazines and paywalls, and whatever else, have been subject to the 20% VAT. Yet, ever since the inception of VAT in the 1970s, print, books, newspapers, magazines, and journals have been zero rated, recognising their value to society and education, and everything else.
So just because of European rules under the VAT Directive, we were not allowed to apply that zero rate to digital publications.
Those rules have changed, so Brexit gives us the freedom to do what we want on VAT, but within the European Union anyway, the VAT rules have changed thanks to some lobbying work that we’ve been doing in Brussels.
So the government’s had the freedom since 2018 to zero rate digital publications, and finally yesterday they’ve done it!
Esther: Because I think was October 2018, the EU said that countries could now basically make their decision on whether they had, their version of VAT and stuff, didn’t they?
Yeah, that’s exactly right. So we’ve been lobbying in Brussels for a long time to get that rule changed. Brussels is doing a lot of work on the VAT Directive at the moment anyway, but they passed a specific change to that Directive to allow countries to apply whatever rates they were applying to print products to digital products as well.
So in the UK case, that’s a zero rate. But in other countries, it’s a reduced rate.
So in the UK, because I was listening to the Chancellor announced it yesterday, it’s not actually coming into effect until December is it?
1st December, not quite sure the purpose of that date. They need time to actually pass legislation to bring this into effect. So that will come in a finance bill, it will come after the Budget. And MPs will debate that and then pass that.
But yeah, I’m not sure there’s any specific significance of December 1st. Another VAT change they made was on so called ‘tampon tax’…
Oh yes, our ‘luxury’ items!
Exactly! That comes into effect on January 1st next year, which I think, again, is to do with us leaving the EU.
So I’m quite puzzled as to why December 1st is the date on digital publications, but I suspect HMRC might have wanted some time to think through the exact nature of how they’ll work it out.
It’s not likely to face any more hurdles with MPs debates, is it?
No, it’s a key government policy. It’s announced in the Budget statement. So it will get through with a Conservative majority of 80, there’s not going to be a challenge to the Budget.
And you at the PPA have been campaigning for this for years now. And you’ve recently done an #AxeTheReadingTax campaign. So why do you think the government has chosen now to axe this, given it’s going to cost them about £220 million, I think I saw was the latest figure?
Yeah, so according to the Red Book, it’s a bit less than that. But the figure that we did, we did some cross-industry research, and the figures about £210 million a year.
I think they’ve chosen to act now for a number of reasons. But one of the most significant was the Cairncross report, which looked into the sustainability of high quality journalism. We spoke to Frances Cairncross who wrote that report and was published 12 months ago, and made sure that she recommended that as a way of supporting journalism in a digital age.
The government responded formally to her report in January. And then this is the first fiscal event that they’ve had the opportunity to make an announcement on tax. So I think it all stacks up in that order.
I saw something about in October, there were a group of MPs that brought the same issue forward, but that was when…I’ve lost track of which chancellor was in charge then…
Well, the last budget we had, Philip Hammond delivered. Sajid was Chancellor for this spending review, but that doesn’t announce tax changes.
So then this is now Rishi’s first Budget. And the good thing is I actually managed to sit down with Rishi a week before he was Chancellor, and had a coffee and discussed this very issue with him.
That was timely!
Timely and convenient that he became Chancellor!
Yes, three Chancellors, I’ve lost track of who’s actually in power now…
Mark Alker responded to this on Twitter actually, he’s got a quite a cynical view that there was a key case that was won in January by News UK, that they managed to get their digital edition classified under the same bracket as a newspaper because it only updated four times a day, and was therefore closer to a print newspaper than a digital edition. Mark hypothesised that this was to stop the government kind of basically ending up with a flood of these cases. Do you think that’s the case? Or do you think there’s better motives behind it?
That case is still ongoing, HMRC have applied to appeal that ruling. So it was originally News UK lost the case, appealed to the Upper Tribunal, the Upper Tribunal then sided with them and said the zero rate could apply to their digital additions. HMRC has now appealed that, and will go to the Court of Appeal with it.
So I think there is an element that that case was helpful in bringing it to Minister’s attention. But that case will still continue, because there’s a retrospective element of that, whereas this change that’s coming in from December 1 will only apply from December 1.
So publishers aren’t going to be able to claim back VAT on decades of digital edition sales then?
Sadly not, no. If News UK manage to win at the next appeal, and the decision of the Upper Tribunal is upheld, there’s potential for publishers to claim back four years of VAT paid on digital editions, over the last four years, if they make a claim now, but that could still take another 18 months or longer, in fact, so it’s worth publishers considering what steps they might want to take to make a protective claim regarding digital additions, if they feel that they meet the same criteria, that News UK have won on.
I can’t imagine that would be many. But yeah, that’ll be interesting to see play out.
I think for a lot of magazine publishers, it should apply to them actually, because most digital magazines are edition based and are not rolling news, whereas paywalls that protect rolling new sites wouldn’t be classified under the News UK’s case, we don’t think.
But if you’ve got a PDF, or page turner versions of digital magazines or app-based edition-based publication, then it’s definitely worth looking at.
Of course, because magazines will just be once a week or once a month…interesting. So, you’ve got a lot of publisher members at the PPA that are likely to now have 20% more in their pockets. What would your advice be to those publishers who have…it’s a bit of a windfall for a lot of them…what would you advise that they do with it?
Well, I mean, the case that we’ve been making to the government as to why they should take this measures and abolish VAT on digital editions is that the market price for publications is generally set by the market, it’s not then VAT added on top, because VAT is included within the price point provided by the market.
So there may be some opportunity to reduce prices to consumers and pass that through…
The Budget seem to imply that they should, it was sort of, ‘Publishers should probably look at passing this back to consumers’.
I think that’s focused on specific markets, and where that’s relevant. Obviously, one of the major issues for magazines publishers is the complication that has built in around bundling and how you attribute which part of the bundle price where you get a print and digital subscription for the price of one, combined in a total price. How you account for VAT within that and where you apportion value etc, etc. that complication will be removed from December 1.
I think that probably will feed through to money in publisher’s pockets, and not price changes to the consumer because the consumer hasn’t been penalised by the VAT, the publisher has been penalised by the VAT. And I think that will allow people to invest in quality journalism, invest in more journalists hopefully, but also, the argument we were making to the government in this campaign was, the VAT on digital was hammering innovation in new ways of funding digital content, new paid content models.
Think about things like micropayments; if somebody is paying 50p per article, and 10p of that has to go to the government, there’s not much incentive for publishers to work on new products and new ways of funding digital content.
I suppose we could see some technology innovations there as well.
Yeah, hopefully so. I think it’s an exciting time for the industry.
So that’s all done and dusted. That’s been a big campaign for you guys for years. What’s next?
Well, I think it is all done and dusted bar the details. We will be continuing to work on this for some months to come as the finance bill goes through Parliament and then as to the letter of that law and how it applies, and exactly which publications that apply to will be hammered out in the finance bill.
So we will be working with officials in Treasury and with politicians to make sure that that applies to the widest possible range of PPA members’ publications, which we’ve been doing to date anyway behind the scenes.
And then HMRC will write the VAT notice that interprets that again, so again, there’ll be more conversations and lobbying work that we need to do to support the implementation of this.
But in terms of what’s next, there’s a long long list of things on the PPA public affairs radar at the moment, so we’ve got all sorts of things going on with relationships with platforms, digital advertising, regulation, the CMA review of Facebook and Google, ongoing issues on sustainability and how we improve sustainability across the sector. Yeah, so there’s plenty to keep us going.
The government are down and now you’re taking on Facebook!
That that’s part of the plan. Well someone’s got to! I think the real point here is that this win shows what the industry can really achieve when it works together for a common goal, and that is what the PPA is here to do and can do well.
So we all know about the challenges of working with Facebook and other giant tech platforms. And there are elements of that relationship that through lobbying for regulatory change and for lobbying for legislative change, or just negotiating in terms of the way that we deal with those platforms, there are things acting as an industry body on behalf of the industry that we serve, we can achieve great outcomes.
So I can see how you’d be able to change legislation, because I know there’s been that legislation in Europe that’s come through about the snippet tax. But it’s still quite difficult, even if you managed to achieve national change, to go to Google and actually get them to comply. I mean, what do you think it’ll take to get them to actually agree to pay something like that, if that is the right thing?
I certainly wouldn’t use the term snippet tax. But I think what we achieved in Europe in terms of getting the publisher’s right as part of the copyright package was about defending a right that already exists under copyright, and how content that is invested in and created by publishers is used, and what renumeration comes back to them on that basis, and how that’s licenced.
It’s right that publishers who pay the journalists invest in creating brilliant content, control how that content is used. And some of them may wish to do that on commercial terms. Some of them may wish to do that under a free licence, but it should be ultimately up to the people who have created that content and invested in it in the first place to decide how that works.