Those who draft legislation cannot possibly foresee technological advances that may transform society in the future. In a case on point, the Court of Appeal considered whether VAT zero-rating, afforded to newspapers since pre-internet days, should be extended to online digital news services.

Newspapers, books, periodicals and journals are zero-rated for VAT purposes for social reasons, including the promotion of literacy, the dissemination of knowledge and democratic accountability. A media publisher argued that the word ‘newspaper’, as used in the VAT Act 1994, should be interpreted as embracing its digital news services, to which the benefit of zero-rating should thus be extended. The success of that argument before the Upper Tribunal entitled the publisher to substantial VAT rebates in respect of a six-year period.

In upholding an appeal against that decision brought by HM Revenue and Customs, the Court noted that the people responsible for drafting VAT legislation which preceded the Act could not have envisaged the central role that the internet and digital media would come to play in everyday life. The word ‘newspaper’ would at that time without doubt have carried the ordinary meaning of a tangible, printed item.

The Court noted that VAT zero-rating provisions must be given a strict interpretation because they derogate from the general principle that all supplies of goods and services should be subject to VAT. The language of the Act also indicated a narrow or circumscribed Parliamentary intention, rather than a broad or permissive one.

The words used led to an inference that the clear legislative intention was to afford zero-rating to physical newspapers only. The Court rejected arguments that the social objectives of the legislation could only be achieved if the word ‘newspaper’ were given the interpretation contended for by the publisher.

The publisher’s plea that such a narrow interpretation offended against the principle of fiscal neutrality – that goods and services that are similar should be treated in the same way for VAT purposes – also fell on fallow ground. The Court noted that the government had in May 2020 extended VAT zero-rating to all electronic newspaper publications.