The government will abolish the 20% “reading tax” on ebooks and online newspapers from December, although it is unclear whether publishers will pass the full saving on to customers.
Printed books and newspapers have always been zero-rated for VAT but until now their digital equivalents – such as books from Amazon’s Kindle service or online subscriptions to news websites such as the Times or the Guardian – have been subject to the sales tax.
Chancellor, Rishi Sunak, confirmed the change would also impact online magazines and academic journals – which will aid the budgets of university libraries. He said a “world class education will help the next generation thrive and nothing could be more fundamental to that than reading”, estimating the change would cost the Treasury £200m a year in lost revenue by 2025.
Amazon welcomed the decision, saying it would “make reading more accessible to more people”, although any reduction in the cost of ebooks could have a knock-on effect on sales for traditional bookshops.
The decision to zero-rate VAT on the products follows years of lobbying from book publishers and news groups, led by Rupert Murdoch’s News UK, who fought a long legal case that both physical and online newspapers should be treated in the same manner.
British newspaper groups that charge for their content are now set for an unexpected financial boost at a time when the industry is struggling.
Although most do not break down their revenue by subscriber base, making it hard to calculate the exact impact, it is expected to make a material difference to their accounts. The Times has more than 300,000 online-only subscribers and a headline subscription price of £312 a year, meaning it could increase revenue by tens of millions of pounds if it does not pass the 20% tax saving on to customers.
Other news outlets with large numbers of online subscribers, such as the Financial Times, will also see a substantial benefit. A spokesperson for Guardian Media Group, the owner of the Guardian and the Observer, said it would benefit the business: “The abolition of VAT on digital news publications is welcome, recognising the shifting reader habits and commercial changes that news organisations are navigating. For quality news organisations, including the Guardian, who are earning more revenue directly from readers, today’s move is a positive step forward.”
However, it remains unclear how the government will define what counts as an online newspaper or magazine for tax purposes, especially when it comes to other online subscription products that charge for information such as newsletters.