The whole area of VAT on books and magazines and their online counterparts has long been an anomaly. Publishers have managed to convince people that books are somehow sacred – all about knowledge and wisdom – and so they have always been zero rated. As an educational publisher – my old life saw me publishing accountancy textbooks – I never felt too guilty about this classification, but publishers of holiday reading or the latest diet fad had a harder time justifying it.
As the world of publishing started to change, the old rules didn't always remain appropriate, and publishers became adept at working them to their advantage. In the mid 90s, they started to add CD-Roms to the back of books. They would include extra resource material that was too expensive to print, or files that could be used for exercises contained in the book. People really liked these CD-Roms and they enabled the publisher to steal a march on their competitors and sell more copies.
Ironically, they always maintained that the CD-Roms were free add-ons with no value, because otherwise the combined product would have liable to VAT. So, they had a key sales feature that they claimed was of no discernible value!
Of course in some cases, for some publishers, the thing that had value really was the CD-Rom. For example, a business game, designed for educational use and delivered on a CD-Rom, was always packaged with a book. Frequently the book had very little value, but it had to be there for two reasons: the first was that there were only a few shops selling software, but a lot of shops selling books. If you took a piece of software to a bookshop, they would refuse to stock it, partly because they didn't understand, and partly because it would get lost on their shelves. So, the book was a vehicle to display the product on their shelves and make it acceptable to the retailer. It had the by-product of providing cover for an otherwise VATable product: the second reason.
As online delivery took over from CD-Roms, things changed again. Online educational materials are VATable where books weren't and that is why accountingcpd courses have VAT applied. If we printed out all the content of a course and made it into a book, you could have it without the VAT.
This is all mildly silly, but not half as silly as the case of newspapers, which up until recently have been VAT free in hard copy format but VATable when identical content is sold online. So you can imagine that Christmas Eve 2019 was a time of much celebration in the hallways of News Corps UK when the Upper Tribunal overturned an earlier First-tier Tribunal decision and decided that digital newspapers could be zero rated.
All of this came back to my mind this week as I read about the case of Dodadine Ltd, a company trading as toucanBox, that produces and sells three sizes of craft box. These consist of craft materials and activities for kids on a variety of themes together with reading material. For the larger two sizes of package, HMRC had accepted that this was a mixed supply of zero-rated book and standard rated craft materials, and so the tax was apportioned proportionately. But for the smallest package the company had replaced the book with similar content in magazine format, so that the product could fit through a letterbox. Magazines are zero-rated in the same way as books, but bizarrely, HMRC had ruled that the content in the magazine was an incidental part of the package and so the whole package had to be standard rated.
All of this would have been a bit of a nightmare for the tax-paying company, but they weren't to be bullied. They conducted a survey among their customers. 91% said that they considered the magazine content to be an "important" or "very important" part of the package. And this was the crucial piece of evidence that won them the case.
So, hats off to Dodadine Ltd for standing their ground. They had taken a sensible and consistent approach to their treatment of the products for VAT purposes and they won because of that. There's a lesson there for all of us.