eBooks have been a hot topic all year. Prompted by my proud 10th follower on Twitter I thought I'd jot a short post to highlight where we are and what can happen next.
When EU and UK VAT legislation was drafted eBooks didn’t exist. Hence books have been defined in VAT law as being in physical form, and an eBook falls within the broad category of an "electronically supplied service". The result in the UK is books at 0% VAT and eBooks at 20%. Not very modern, or fair it may seem.
So why not change the law? Unfortunately it's not that simple. VAT is an EU harmonised tax, and when the UK joined the EU it agreed to follow the VAT Directive. Any "new" reduced rates in the UK must be EU wide and permitted by the Directive. Currently it is not permitted to apply a reduced rate to eBooks, a change would require 27 member state approval, and we all know this doesn’t happen quickly. More on this in a bit.
An added twist is that eBooks are currently subject to VAT where the supplier is established. This means that if you (a UK resident) buy an eBook from a UK based company you'll be charged 20% UK VAT, but if you buy one from a Luxembourg based company you'll be charged 3% VAT. Next time you buy an eBook have a look at the t'c and c's, you may be interested to see who it is you're actually buying your eBook from. The rules change in 2015 but for the moment there is a competitive advantage for eBook providers to be located outside the UK.
Why can Luxembourg charge a 3% rate and not the UK? On 1st January 2012 France introduced a 7% reduced rate for eBooks, and Luxembourg (possibly in response to this) a 3% rate. Whether France and Luxembourg are correctly able to do this within EU VAT law is a complex question. However, there is a technical difference between the two. Countries who had existing reduced rates of VAT for certain goods/ services were allowed to keep these when they joined the EU; Luxembourg’s 3% is a pre-EU rate (similar to the UK’s 0% rate), whereas France appears to be extending an EU wide reduced rate. So when it comes to extending our 0% VAT rate to eBooks the UK ought to be in a similar position to Luxembourg.
David Gauke that Treasury Minister has said that “There is therefore no scope in the principal VAT Directive to apply a reduced rate on e-books”. This is technically correct but doesn’t really answer the question as the UK 0% rate is permitted outside of the Directive. The real question is whether the UK can legally extend/ apply its 0% VAT rate to eBooks, and the technical article “How to Zero-Rate eBooks” suggests that it probably can: www.taxjournal.com/tj/issuearticles/909
Actually this would put the UK in a very strong position as it is one of only two EU countries able to apply 0% VAT to books. If this rate could be extended to cover eBooks, the UK could undercut both Luxembourg and France (and pretty much all the EU) as being the most preferable location for an eBook business. The reality is that that political pressure will probably mean that the EU VAT treatment of eBooks will eventually fall in line with physical books. This is not the easiest time to attract business to the UK, perhaps the government is missing a trick...
26 Jan 2012
25 Jan 2012
VAT Fact - Renovations...
Just a quick fact this week! As the economic forecasts are downgraded around us this is a time to be thrifty, and even William and Kate are renovating their Kensington Palace apartment rather than moving to a newer more functional home Link to intrusive article on Will & Kate's personal life. So, you’re probably wondering if this is simply more convenient, or do Will and Kate know something that we don’t know?
And the answer is probably that the second. Unlike work on an ordinary home, an approved alteration of a protected building (for example listed building) is subject to 0% VAT, and this includes the building materials that they use. So where as you or I will probably end up paying 20% VAT on our loft extension, for older more historic dwellings the treatment is different.
And the answer is probably that the second. Unlike work on an ordinary home, an approved alteration of a protected building (for example listed building) is subject to 0% VAT, and this includes the building materials that they use. So where as you or I will probably end up paying 20% VAT on our loft extension, for older more historic dwellings the treatment is different.
18 Jan 2012
Joey the Horse
No doubt everyone will have been excited to see the attendance of Joey the horse at the UK premier of Steven Spielberg’s War Horse this week Link to article on War Horse Premier. Although, like me, you might have been concerned as to the VAT implications of his foray to the UK.
Unlike “meat animals” the supply of horses is standard-rated, and so, in common with any racehorse, Joey could be expected to pay 20% import VAT on arrival. We would hope he could get around the relevant import duty and VAT under temporary importation relief, which would usually allow a temporary stay of up to two years in the EU. However, the legislation does refer to “import for training, breeding, veterinary
treatment, participation in a race, or grazing” and so we would probably want to seek a ruling on import for attendance at a movie premier.
Should Joey be paid attendance money, his position would be similar to that of racehorses; whilst prize money is usually outside the scope of VAT, attendance money or guaranteed prize money is subject to VAT. We would also need to look at the VAT establishment of the supplier who owns Joey (different to establishment for CT purposes) in order to determine whether the place of supply is in the UK or otherwise.
Unlike “meat animals” the supply of horses is standard-rated, and so, in common with any racehorse, Joey could be expected to pay 20% import VAT on arrival. We would hope he could get around the relevant import duty and VAT under temporary importation relief, which would usually allow a temporary stay of up to two years in the EU. However, the legislation does refer to “import for training, breeding, veterinary
treatment, participation in a race, or grazing” and so we would probably want to seek a ruling on import for attendance at a movie premier.
Should Joey be paid attendance money, his position would be similar to that of racehorses; whilst prize money is usually outside the scope of VAT, attendance money or guaranteed prize money is subject to VAT. We would also need to look at the VAT establishment of the supplier who owns Joey (different to establishment for CT purposes) in order to determine whether the place of supply is in the UK or otherwise.
A few interesting facts about VAT
This is a Christmas special that I wrote for Harry's blog http://www.trivialpursuits.org/. Hope you enjoy...
To help whip up some enthusiasm for my forthcoming article on “Growth and Taxation” (yes, the title may be dry but the content will juicy), here come some Christmas VAT pleasers to add extra entertainment to your family gatherings this December.
Britain’s favourite VAT fact, as demonstrated by a Sun newspaper poll on the topic (this is not the link but I couldn't find the real one), concerned the biscuit status of our beloved Jaffa Cake. This fervent argument which rumbled all the way to tribunal, all stemmed from differing treatment of chocolate covered biscuits (20% VAT) and chocolate covered cakes (0% VAT). Whilst the taxman would contend (and still does) that it looks like a biscuit, is packaged like a biscuit, is used like a biscuit, Sun readers think it’s a biscuit, and basically it is a biscuit, the courts thought otherwise. And a VAT fact was established: cakes go hard when stale whereas biscuits go soft. FACT.
And Jaffa’s are not alone. Various interpretations of the tax law on food have lead business to make some quite bizarre claims about their own products. Pringles were so keen to get away from the 20% VAT charged on “potato crisps and similar products” that they went all the way to the Court of Appeal to claim that Pringles are not made from potato. Which makes you wonder what they are made from; I think “oil” featured heavily in the discussions. And Lucozade are currently of the view that Lucozade Sport is not, as might be thought, a beverage, but in fact a “functional food”. Watch this space for more news on that battle.
Because, you see, the watchful eye of VAT encompasses all we do. There is really no escape. Just look to the judgment in R&J Polok t/a Supreme Escorts; establishing the VAT FACT that just because what someone is doing is illegal, it doesn’t mean it’s not subject to VAT. In its summary the High Court surmised that to not charge VAT on Supreme Escorts’ services would give a competitive advantage over escort and introductory agencies that did not provide sexual services. You can’t argue with logic like that.
So think fondly and muse on VAT over the Christmas period. And next time you enjoy a Toasted Sub, you can ponder on whether Subway were correct when they maintained that it is not a “hot food”. And as you slurp its fruity goodness give a thought to whether your Innocent Smoothie is really, in fact, a “liquefied fruit salad”?
To help whip up some enthusiasm for my forthcoming article on “Growth and Taxation” (yes, the title may be dry but the content will juicy), here come some Christmas VAT pleasers to add extra entertainment to your family gatherings this December.
Britain’s favourite VAT fact, as demonstrated by a Sun newspaper poll on the topic (this is not the link but I couldn't find the real one), concerned the biscuit status of our beloved Jaffa Cake. This fervent argument which rumbled all the way to tribunal, all stemmed from differing treatment of chocolate covered biscuits (20% VAT) and chocolate covered cakes (0% VAT). Whilst the taxman would contend (and still does) that it looks like a biscuit, is packaged like a biscuit, is used like a biscuit, Sun readers think it’s a biscuit, and basically it is a biscuit, the courts thought otherwise. And a VAT fact was established: cakes go hard when stale whereas biscuits go soft. FACT.
And Jaffa’s are not alone. Various interpretations of the tax law on food have lead business to make some quite bizarre claims about their own products. Pringles were so keen to get away from the 20% VAT charged on “potato crisps and similar products” that they went all the way to the Court of Appeal to claim that Pringles are not made from potato. Which makes you wonder what they are made from; I think “oil” featured heavily in the discussions. And Lucozade are currently of the view that Lucozade Sport is not, as might be thought, a beverage, but in fact a “functional food”. Watch this space for more news on that battle.
Because, you see, the watchful eye of VAT encompasses all we do. There is really no escape. Just look to the judgment in R&J Polok t/a Supreme Escorts; establishing the VAT FACT that just because what someone is doing is illegal, it doesn’t mean it’s not subject to VAT. In its summary the High Court surmised that to not charge VAT on Supreme Escorts’ services would give a competitive advantage over escort and introductory agencies that did not provide sexual services. You can’t argue with logic like that.
So think fondly and muse on VAT over the Christmas period. And next time you enjoy a Toasted Sub, you can ponder on whether Subway were correct when they maintained that it is not a “hot food”. And as you slurp its fruity goodness give a thought to whether your Innocent Smoothie is really, in fact, a “liquefied fruit salad”?
VAT Fact - Liz Taylor Auction
You may have seen the news about the record breaking €115m auction of Elizabeth Taylor’s jewellery in New York last night. So no doubt you’re wondering what the VAT implications are of bring some of these beautiful items back to the UK? So...
Generally you’d expect jewellery to attract 20% import VAT;
But if you snapped up the $11m pear-shaped 16th-century pearl, once owned by England's Mary Tudor, this would qualify as an antique and an reduced effective VAT rate of 5%;
And similarly, if you could successfully argue that the $4.2m tiara (a birthday gift in 1957) is an item of historical significance, the 5% could also apply.
Generally you’d expect jewellery to attract 20% import VAT;
But if you snapped up the $11m pear-shaped 16th-century pearl, once owned by England's Mary Tudor, this would qualify as an antique and an reduced effective VAT rate of 5%;
And similarly, if you could successfully argue that the $4.2m tiara (a birthday gift in 1957) is an item of historical significance, the 5% could also apply.
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