In the UK, certain supplies that are taxable for the purposes of value added tax are liable to VAT at the zero rate. No VAT is therefore charged on the sale and the vendor does not need to account to HMRC for any VAT on these supplies. However the vendor has the right to recover the VAT incurred on expenses relating to the sale, such as the expenses in connection with marketing and selling the item. It is therefore important to the vendor to establish that the item sold qualifies for the zero rating.
The zero rating for books and newspapers relates to the supply of the following items:
Books, booklets, pamphlets, brochures and leaflets; Newspapers, journals and periodicals; Children’s picture books and painting books; Music (printed, duplicated or manuscript); Maps, charts and topographical plans; and Covers, cases and other items supplied with the above items.
These items are mostly matter that is printed on paper or card, though a product in Braille may also qualify for the zero rating. Where a book is in electronic form, it is subject to VAT at the standard rate. There is however an exception in the case of talking books for the blind. These are zero rated under a separate category in the VAT law.
The sale of the following types of product will be subject to VAT at the standard rate:
Books of plans and drawings for industrial, architectural or engineering use; Picture card and stamp albums, unless they contain substantial reading matter and no more than 25 percent of the album is reserved for attaching stamps or cards; Completed stamp albums; or Stationery products such as diaries or calendars.
Stationery items, which are subject to VAT at the standard rate, would also include products such as account books or exercise books. The differences between a booklet, leaflet or brochure on the one hand and stationery items on the other hand has give rise to a number of legal disputes. Although books, leaflets and brochures qualify for the zero rating, there are complications if for example an application form is included with a brochure.
HMRC have ruled that the zero rating could apply to a product that is primarily a leaflet or brochure but with an application form included, provided that the areas that are blank and intended for completion and the parts to be detached and returned take up no more than 25 percent of the space of the whole printed matter.
Children’s picture books are zero rated whether they are printed on paper, plastic or textiles. Where however a children’s picture book is essentially a toy, for example a book consisting mainly of models for cutting out, this is charged to VAT at the standard rate. If printed text directly relating to the items to be cut out covers at least 25 percent of the pages, the book can be zero rated.
Promotional items with books or magazines
Where books or magazines are supplied with other items as a single package, this may be treated as a single supply when one element is the principle element and all other items supplied are ancillary to this main item. Otherwise, there is a multiple supply and if some items are chargeable to VAT at different rates the VAT on each item must be computed separately.
Where a promotional item such as a CD is supplied with a magazine, the whole package can be zero rated provided that the following conditions apply:
There is no separate charge for the promotional item; The issues containing the promotional item are supplied at the same price as those without the item; and The cost to the provider of the promotional item or other items supplied with any issue does not exceed one pound or 20 percent of the total cost of the combined supply.
If the promotional item does not fulfil these conditions it will be necessary to account for VAT separately on that item.
HM Revenue and Customs www.hmrc.gov.uk
“Value Added Tax” by Andrew Needham and Steve Allen, Bloomsbury Professional, 2009